If you’re thinking about homeowners insurance, there’s a good chance you’ve heard the terms “Replacement Cost” and “Actual Cash Value”.
But what do they mean? Here’s the difference between Replacement Cost and Actual Cash Value when it comes to your homeowners insurance.
Actual Cash Value
Appraisers determine the Actual Cash Value by deducting the depreciation cost from the replacement cost of the home. This level of coverage is your cheapest option because if you were to have a claim, the amount that you are paid out is less than the replacement cost coverage option.
If you choose this level of coverage, you most likely will have to pay out of pocket for a replacement item on your home. Because the actual cash value of an item takes the deprectiation costs due to wear and tear into consideration, you as the policyholder will receive less money from the insurance carrier than it would cost to buy a similar item.
Replacement Cost
On the other hand, Replacement Cost coverage awards the policyholder with the amount of money that is required to replace whatever was damaged at today’s cost (aka: more than the actual cash value amount). Many people choose this policy type because it helps you get back to normal without much (if any), additional out-of-pocket expenses from you.
Here’s an example of the difference: Your house unfortunately burns down in a fire.
If you had replacement cost coverage, you would receive a check from your carrier up to the amount that it would cost to build a similar home. You would be able to rebuild your home from scratch based on the current prices of labor and materials.
If you had actual cash value coverage, you would likely receive a smaller check because the carrier would take into account depreciation on the cost of your house. You would be responsible for personally financially covering the rest of the amount that it would cost to rebuild your home.
At Blue Marsh Insurance, we work with carriers that use the following coverages:
Guaranteed Replacement Cost: Pays full cost of repairing/replacing dwelling with no maximum dollar amount. This gives you peace of mind that your home will be rebuilt back to its previous size and specifications – no matter how much it costs. As we know, building materials and labor are everchanging. However, with Guaranteed Replacement Cost coverage, you’ll never need to worry about how changing prices could affect your rebuild cost, should the worst happen to you. As our partner, Erie Insurance explains, Guaranteed Replacement Cost is really the “gold standard for homeowners insurance”.
Extended Replacement Cost: Pays full cost of repairing/replacing up to a maximum of 125% of the insured dwelling value.
Replacement Cost: Pays a full cost of repairing/replacing up to a maximum of 100% of the insured dwelling value.
Curious about what you should do in your specific situation? Let us help! Give us a call at 610-590-0152
A little more about Blue Marsh Insurance…
When he founded Blue Marsh, Tom Davenport wanted to create a different kind of insurance company. One that’s built on personal relationships and a local presence. One where you, the customer, feel more like a friend.
As an independent insurance agency, Blue Marsh Insurance represents a carefully selected group of financially strong, reputable insurance companies. Therefore, we are able to offer you the best coverage at the most competitive price.
If you’re interested in starting a quote online or having us take a look at your current policies, click here!