Actual Cash Value or Replacement Cost

by Tyler Hennegin

One of the questions you have probably been asked when purchasing an insurance policy is whether you are wanting actual cash value (ACV) or replacement cost coverage (RC).  Both have their place in the insurance world; which coverage is correct for you depends upon how you want your policy to perform in the event of a claim.

Replacement Cost Coverage is just what it sounds like.  With this coverage, you can expect to receive the amount of money it costs to replace the item that suffered loss at the time of a claim.

Actual Cash Value Coverage is defined by Webster as “money equal to the cost of replacing lost, stolen, or damaged property after depreciation.”  It’s the after depreciation that sets this coverage apart.

Here is an example of how each could play out in a theft claim:

Item Actual Cash Value Replacement Cost Value
Couch (10 years old) $500 $1200
50 inch TV (5 years old) $200 $500
100 CD’s $300 ($3.00 each) $800 ($8.00 each)
20 DVD’s $100 ($5.00 each) $200 ($10.00 each)
42” JD Riding Lawn mower (6 years old) $1300 $1700
New Computer $900 $900
Total $3300 $5300
Deductible -$500 -$500
Claim amount paid $2800 $4800

Replacement cost coverage can help protect you from having to pay too much out of pocket to replace the item(s) that are damaged or stolen in a loss.  In the example above the RC policy would have paid out $2,000 more than the ACV policy.  However, this coverage is typically more expensive and may not always be an available option.

For example, most auto insurance policies offer only Actual Cash Value coverage on vehicles if you choose to insure them for physical damage.  (There are some exceptions now where companies offer new vehicle replacement, but these offers are typically limited to the first couple of years of a vehicles life.)  This is why it is cheaper to have physical damage coverage on a 2000 Toyota Camry than it is on a 2017 Toyota Camry.  If replacement cost were available on a 2000 Toyota Camry, I expect people would think twice about pulling their cars inside their garages during a hail storm. J

However, most home insurance policies will give you the option to insure both the structure and the contents inside at either ACV or RC.

It is always nice to have options, actual cash value and replacement cost coverage are two that you may run into when purchasing insurance.  Depending on the situation and your expectations for how the policy will perform in the event of a loss, either could be a valid choice.  If you have questions about these coverages, I encourage you to reach out to a MAX Insurance agent today!

Tyler Hennegin, AgentAbout Tyler Hennegin

Sports lover, Dad of one son and one daughter, and Insurance Agent!
Direct Phone – 913-754-3825

Tyler has worked at MAX since January of 2011 and has 10 years of experience in the insurance industry.   Tyler enjoys spending time with his wife and two children. Watching his children be active in sports like soccer, gymnastics, football and basketball keeps him busy and hopping around town.