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.
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.
The content above is essentially a summary of what is explained by the Texas Department of Insurance on their website. The Texas Department of Insurance also regulates our licensing as sales agents and brokers, as well as the conduct of the insurance carriers in our great state of Texas. Click on the button to be directed to their website for more information.