Replacement Cost vs. Actual Cash Value

Replacement Cost

Pays today's cost to replace your property.

Replacement Cost does not pay what you originally spent.

Instead, it helps pay what it costs today to purchase a new item of like kind and quality.

Example

You purchased a television five years ago for $1,000.

Today, a comparable television costs $1,450.

With Replacement Cost coverage, your policy helps pay the current replacement cost of approximately $1,450 (subject to your deductible, policy limits, and policy terms).

Key Takeaways

• No deduction for age or normal wear
• Based on today's replacement cost
• Designed to help replace what you lost—not reimburse what you originally paid

Actual Cash Value (ACV)

Pays the depreciated value of your property.

Actual Cash Value (ACV) does not pay what it costs to replace an item today.

Instead, it pays the item's depreciated value after accounting for age, wear, and normal use.

Real-World Example

You purchased a television five years ago for $1,000.

Today, a comparable television costs $1,450.

Because the television has depreciated over time, its Actual Cash Value is approximately $400.

With Actual Cash Value coverage, your claim payment would generally be based on the item's depreciated value rather than what it costs to replace it today.

Key Takeaways

• Depreciation is deducted before your claim is paid.
• Claim payments are generally lower than Replacement Cost coverage.
• Policies with ACV coverage often have lower premiums.