The difference in one minute
- Replacement cost pays what it costs to repair or replace damaged property with new items of similar kind and quality.
- Actual cash value pays replacement cost minus depreciation, so older items get much less.
- Many insurers pay the actual cash value first, then the rest once you actually replace the item.
- Roofs are a common place insurers switch to actual cash value, so check your policy.
In this article
Quick comparison
- Replacement cost: new for old
- Actual cash value: new minus wear and age
- Price difference: replacement cost usually costs a bit more
- Common catch: roof coverage limited to actual cash value
Definitions follow the Insurance Information Institute and state insurance regulators. Check your declarations page for your policy's terms.
Replacement cost vs actual cash value is the fine print that matters most at claim time. Two policies can have the same limits and still pay very different amounts after the same loss.
Here is how each one works, with real numbers, and how to tell which one you have.
How each one pays out
| Item | Cost to replace today | Age | Actual cash value payout | Replacement cost payout |
|---|---|---|---|---|
| Sofa | $2,000 | 6 years | About $800 | $2,000 |
| Laptop | $1,200 | 3 years | About $500 | $1,200 |
| Roof | $15,000 | 15 years | About $5,000 | $15,000 |
Depreciation figures are illustrative. Each insurer uses its own schedules, and the deductible comes off either way.
Recoverable depreciation: how the second check works
- After a covered loss, the insurer pays the actual cash value first.
- You repair or replace the damaged property and send receipts.
- The insurer pays the held-back depreciation, up to your replacement cost limit.
- Many policies set a time limit to complete the replacement, so ask about it early.
Compare policies with replacement cost coverage
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Replacement cost is usually worth it if you:
Actual cash value can make sense for a rarely used property or when the premium savings are large and you could cover the gap yourself.
Find replacement cost coverage near you
Rates change from one ZIP code to the next. Add yours to see homeowners insurance options available where you live, with no commitment.
Watch out for roof schedules
Some insurers now pay roof claims on an actual cash value basis or use a payment schedule based on roof age. That can mean a much smaller check for an older roof. Ask about it before you buy, especially in states with frequent hail.
Frequently asked questions
What is actual cash value in homeowners insurance?
The replacement cost of an item minus depreciation for age and wear. It reflects what your used item was worth just before the loss.
Is replacement cost coverage more expensive?
Usually a little, because the insurer may pay more on claims. Many people find the extra protection worth it.
Does replacement cost cover my house too?
Many HO-3 policies pay replacement cost on the dwelling, up to its limit. Belongings may be on actual cash value unless you choose replacement cost.
What is guaranteed replacement cost?
An endorsement that pays to rebuild your home even if it costs more than your dwelling limit. It is less common than extended replacement cost.
See home insurance options for your address
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