Should I Choose Actual Cash Value or Replacement Cost?

Actual Cash Value

Actual cash value is the amount your property or possessions are worth based on the age and condition they are in at the time of loss or damage. It is equivalent to replacement cost less a deduction for depreciation.

Replacement Cost

Replacement cost is the amount it would cost to rebuild your home with materials of a similar type and quality, or replace your possessions, without any deduction for depreciation.

Replacement Cost Coverage is Better

A policy that provides replacement cost coverage is better than a policy that provides actual cash value coverage because no deduction for depreciation is made. However, the premium for a replacement cost policy is likely to be higher because the insurance value is greater.

Many insurance policies actually have a mix of the two. These normally provide replacement cost coverage for your home and actual cash value coverage for your contents (personal belongings). It is usually possible to upgrade your policy and obtain replacement cost coverage for your contents as well.

September 3, 2010