Understanding Replacement Cost vs Actual Cash Value (ACV)

You may have had a conversation with an agent before about replacement costs and cash value options in your policies. Usually, you are given a choice between the two. Understanding the difference will help you in the long haul, especially if you do end up filing a claim.

Replacement Cost: If you have a policy with replacement costs, then it will payout the amount required to replace the item lost, stolen or damaged. This means that value could be higher or even lower, than the original amount you paid for the item. But it ensures that you can replace the item without worrying about additional costs. It does not take into account depreciation.

Cash Value, or Actual Cash Value: The actual cash value or ACV of an item is the current worth of the item that has been lost, damaged or stolen. This means the amount of the item, minus depreciation.

In the end, it comes down to what is most important to you: the cost of replacing the item, or recouping the value you’ve lost. You can discuss the specifics with your agent to ensure that your policy is meeting your specific needs.