Replacement cost vs actual cash valueIf you have ever purchased a homeowners insurance policy you have found out that the number of options can be a bit overwhelming. If this is your first time purchasing a homeowners insurance policy, take the time to do a little research. This is where having an independent insurance agent will come in very handy. They will not only find the best rates and the best carrier to fit your needs, they will also guide you and help you make these numerous decisions.

All homeowner’s insurance policies will cover your household contents automatically; however how they are covered is a decision you will need to make. Replacement cost vs Actual Cash Value, that will be something you will need to consider. This will be one of the questions you will be asked when you purchase coverage. Well, chances are you will not know how to answer that question, and that’s ok. My answer would be, what’s the difference?


Replacement Cost

Replacement cost is the actual cost to replace an item or structure at it’s pre-loss condition. Replacement cost is designed so the policyholder will not have to pay additional cost to replace an item or rebuild.


You purchased new living room furniture a few years ago that cost $1,000, is  now worth $450, but today would cost $1,300 to replace. With replacement cost, you would collect $1,300 minus any deductible to replace your furniture.

Actual Cash Value

Actual cash value means when you file a claim, you will be paid a depreciated value for the item. In other words you will be paid the depreciated value instead of the retail value for the item.


Your TV originally cost $1,000 but at the time of the claim it is five years old and  is now only worth $500. Your policy will pay out $500 less any deductible.

So which option do I choose?

One factor to look at is monthly premium. Experts estimate that choosing replacement cost over actual cash value coverage could cost up to 15% more each month in premiums. An actual cash value policy will give you peace of mind by covering your home and will provide the benefit of a lower monthly premium. So if budget is your number one concern, actual cash value is the way to go.

However, in the event of a loss with actual cash value you will not receive the full amount to replace your items with brand new, like items at today’s cost. If you want to ensure that in the event of a total loss you would be able to replace all your possessions with the same type of items you have now, the extra monthly premium would be worth it to go with replacement cost.

To discover what type of coverage you need, take the time to analyze your possessions and their values.

What are my contents worth?

The best way to determine the type of coverage you need is to do a home inventory. This will allow you to have a complete list of items so you can figure their value and the cost to replace them. When you make a home inventory make sure to keep the following in mind:

  • Make an itemized list of everything that could be damaged, lost or stolen.
  • Include brand name, model number or serial number, color, size, style, features, etc.
  • Include date the item was purchased and the cost of the item
  • Keep your inventory up to date
  • Keep several copies of your list. It’s a good idea to keep one copy outside of the home. You can even email yourself a copy so you will have access to you in the event of an emergency

Did you know Rinehart Insurance has a free home inventory tool?

Download the Rinehart Insurance Mobile App to your smartphone and you will be able to have a home inventory at your fingertips! Our Mobile app will allow you to take pictures of items, add details such as cost, serial number, and location of the item and you will even have the option download a pdf or email your inventory to yourself or your insurance agent for safe keeping.  

If you found this helpful, please take a moment to share.