REPLACEMENT COST vs. ACTUAL CASH VALUE
Replacement Cost
Actual Cash Value
Actual Cash Value
A policy with Replacement Cost Coverage pays to repair or replace your property at current market value. For example, if you bought a new roof 10 years ago and the current market price for a new roof is $20,000. If you have to replace your entire roof after a storm, a replacement cost policy would pay for a new roof at today’s market prices. If you have a $2,000 deductible, your company would pay $18,000.
Actual Cash Value
Actual Cash Value
Actual Cash Value
A policy with Actual Cash Value Coverage pays replacement cost minus depreciation, which is a decrease in value because of wear and age. In the same example of the 10-year-old roof, the actual cash value might be $17,000. After your $2,000 deductible, your company would pay $15,000. You’d have to pay the rest of the cost of the new roof ($20,000) yourself. This means your total out-of-pocket costs for an actual cash value policy would be $5,000, compared with $2,000 for a replacement cost policy.