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Actual Cash Value Vs. Replacement Cost

What kind of home insurance do you have, and is it really the right coverage that you need? Surprisingly a lot of people don’t ask this question. Instead, they tend to ask if they can afford the insurance that they have. The problem with this question is that typically they will take any insurance that they can get. Even if the coverage is next to useless for them they will accept it because it gets them by. They don’t actually realize the problem with the insurance until the unexpected happens and they need the insurance that they didn’t get, instead of having to make do with the one they settled for. This usually ends up with them having to pay out of pocket along with what they get from the insurance.


A major part of home insurance that people don’t understand when it comes to picking a plan is Actual Cash Value vs. Replacement Cost. The difference between these two terms can be in the thousands of dollars. To make it easier, we will break each term down separately.

Actual Cash Value: Actual cash value is the value of an item when it is destroyed or damaged. Imagine you paid $1,000 for a piece of furniture and it later got damaged beyond repair. Actual cost value will look at the $1,000 you paid for it and take away any depreciation it has gained. Deprecation can happen pretty fast. The first day the piece of furniture is in your home, it can lose significant value. Add on any wear and tear to that depreciation and you might end up not getting anywhere near that $1,000 you paid for it. Another way something can gain depreciation is by becoming obsolete. Technology changes and machinery or technology might become obsolete, which in turn drops its value. For instance, a $1,000 PC in 2010 would maybe sell at a yard sale here in 2017, meaning you won’t get paid $1,000 to replace it.

Replacement Cost: Replacement cost, on the other hand, is the value needed to replace the item with a new one of equal or lesser cost. For instance, if you paid $1,000 for a piece of furniture in 2015 and it gets damaged beyond reasonable repair the replacement cost would be $1,000 to get a new piece of furniture. Depreciation would not be factored into the amount. Since this would lead to a larger payout for any damaged property covered by your plan, some insurance companies will try and lead you toward Actual Cash Value or not even offer Replacement Cost plans.

Knowing the difference between these two forms of coverage can save you hundreds if not thousands of dollars on Ormond Beach Home Insurance. Next time you look at your insurance coverage or talk to an insurance service provider like O’Quinn insurance, ask these questions along with any other questions you might have about available plans. A good insurance service provider will answer your questions so you can get the plan that’s right for you and for your budget. A shady insurance provider won’t be so quick to answer questions, instead of trying more to just sell you a plan.  If you are looking to get a better insurance plan, or simply want to know what your current plan covers, check in with O’Quinn and see what you could be doing to improve your coverage.

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