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The Difference Between Actual Cash Value and Replacement Cost

personal property coverage options

Learn the difference between these two coverage options and find out what each means for your homeowners insurance.

When you are getting homeowners insurance in Carrollton, Texas, there are several important coverage decisions that you will have to make.  For instance, you may have the option to choose between actual cash value and replacement cost coverage for your personal property.  But what does each type of coverage entail?  Here’s what you need to know about the difference between actual cash value and replacement cost.

Actual Cash Value (ACV)

Actual cash value is when an insurance company offers coverage for an item based on its depreciated value at the time of loss.  Rather than offering you compensation to replace your covered items, these types of policies only offer compensation for what the insurer determines is the current value of the items.  Because this insurance option offers more limited coverage than its replacement cost counterpart, it tends to be the more affordable option.  However, if you rely on this limited coverage, then you will not have enough coverage to replace damaged or stolen items, especially if they are high-value.

Replacement Cost

On the other hand, replacement cost policies offer coverage that will reimburse you for the full value of a covered item.  These policies do not factor in an item’s depreciation, essentially offering you coverage for a brand-new item regardless of how long the item has been under your ownership.  Replacement cost values are generally set and agreed upon by all parties before a homeowners insurance policy is finalized.  As these policies offer more comprehensive coverage, then tend to be on the more expensive side.  However, if you want to insurance high-value items such as jewelry, fine art, antiques, electronics, and so on, then having this type of coverage is highly recommended.

This is the main difference between actual cash value and replacement cost coverage.  Do you need assistance making other important decisions regarding your homeowners insurance in Carrollton, Texas?  Then don’t hesitate to contact the experts at Mike Leonard Insurance Agency.  Our dedicated team is eager to find you the right coverage from one of our many carriers including: Kemper, MetLife, Travelers, The Hartford, Safeco Insurance, Progressive, and American Strategic Insurance.