What Is The Difference between Actual Cash Value and Replacement Cost?

When you purchase a homeowners insurance (and other types of property insurance), you likely have a choice between two types of coverage: actual cash value and replacement cost. In this blog post, you will learn what both of these mean and which one is best for you.

Actual cash value does what it sounds like. If your home or property is damaged, this coverage will replace your asset at the value it is worth (as opposed to what it would cost to replace it with a brand-new version). In other words, it replaces your assets by accounting for depreciation.

Replacement cost also does what it sounds like. It will cover the cost of replacing your lost or damaged assets in full. It is important to know that replacement cost has nothing to do with the value of the land your house is on. A home’s replacement cost is the cost of rebuilding, pure and simple.

So which is the right coverage for you? Actual cash value usually has cheaper premiums, but pays for less. Replacement cost is more expensive, but covers more of your loss. So it totally depends on your financial situation, home, and property. Replacement cost is the more popular choice since you will be able to replace your home and belongings without having to use your own money. This is especially true if you do not have a lot of money saved. Actual cash value is a common choice for people that have more money saved and a second home. This way, if they do experience a loss, they have a place to stay while also having the ability to replace their belongings out of their pocket.

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