companies that offer property protection like renters and homeowners insurance commonly determine the cost of replacing damaged or stolen property based on two coverage options actual cash value vs replacement cost value you’ll have the option to choose between the two when you enroll in property insurance so understanding the difference is crucial to securing the right level of coverage for your home and your wallet we at the guides home team have broken down everything you need to know to compare actual cash value and replacement cost coverage read on to learn more actual cash value acv coverage describes the cost to replace a stolen or damaged item minus the amount that it has depreciated or how much it has decreased in market value over time insurance companies calculate depreciation based on the normal wear and tear a property sustains over its useful life or up until the time of the covered loss as with any form of insurance your policy’s deductible and coverage limits will impact your reimbursement amount until you meet your policy’s deductible your provider will subtract that amount from your payout your reimbursement will also be capped according to the coverage limits outlined in your contract so if you have an annual deductible of 500 and a 2000 coverage limit your total payout will be adjusted to cover the deductible and cannot exceed the coverage limit if you’ve already met your deductible by filing other claims you won’t have to worry about paying it again until your policy renews for the year suppose your house is broken into while you are away and you come to find your stereo system stolen with an actual cash value policy you can file a claim with your insurance provider for the cost of your stolen stereo but due to depreciation the reimbursement may only account for a portion of the cost which is relative to the age and condition of your system in other words your insurance company won’t compensate you for the full cost of a new replacement stereo system if its value has decreased over time here’s an example of how acv would be calculated in this scenario when you first purchased your stereo system five years ago it was worth 600 brandnew the stereo has an approximate life expectancy of 10 years a comparable newer model is worth 700 in stores today but because your stolen system is five years into a 10year lifespan it has depreciated by at least 50 or by 300 if you subtract that 300 from the cost of the current market value which we established is 700 then an insurance adjuster would appraise the actual cash value of your system at around 400 replacement cost value rcv refers to the amount it would cost to fully replace an item with the exact same or a similar version at the current market price said another way the replacement cost is what you would have to pay for a new version of a damaged stolen or destroyed item unlike acv replacement cost policies do not consider the depreciated value of the item however coverage limits and deductibles still apply consider the same stereo system example as above even though your stereo was five years old at the time of loss you don’t have to worry about depreciation with rcv coverage the replacement value of your stereo system would be based on its current market value so if a comparable model is priced at 700 today that’s how much you would receive back but keep in mind that your total payout will be adjusted based on your policy’s deductible and coverage caps in addition to the standard plan we’ve described above replacement cost coverage is offered as a policy endorsement or addon you will typically have the option to purchase rcv through the following home insurance addons   extended replacement cost coverage increases coverage amounts if your property is severely damaged or destroyed in a sudden disaster and rebuilding costs exceed your policy’s limits allows you to raise your coverage caps by 10–15 to avoid paying the difference outofpocket   guaranteed replacement cost coverage ensures reimbursement for the total cost to rebuild your home if it is damaged or destroyed by a covered disaster regardless of your policy’s coverage limits though this addon can be expensive it may be a worthwhile investment for homeowners in   modified replacement cost coverage typically offered as an rcv alternative for older homes with ornate and original features this coverage will pay for repairs and replacements using modernday materials and techniques which is better actual cash value or replacement cost value choosing between actual cash value or replacement cost coverage ultimately comes down to two things your coverage needs and the cumulative value of your belongings actual cash value coverage is generally more affordable than replacement cost coverage but payouts can be much lower due to depreciation adjustments alternatively replacement cost value coverage is more expensive but guarantees a high enough reimbursement to replace your lost or damaged property with a new item you’ll find that acv is typically the default coverage option across the majority of insurance companies whether or not you wish to upgrade your policy to rcv depends on your tolerance for risk and overall financial flexibility when considering whether to enroll in actual cost value or replacement cost coverage the goal is to avoid paying for more insurance coverage than you need a good starting point is to figure out a ballpark number for how much it would cost to replace the structure of your home itself we recommend hiring an appraiser or insurance agent to help you nail down an accurate estimate you’ll also want to take inventory of all the items in your home and the total value ideally you’ll want a homeowners policy with enough coverage to replace most of your personal property and cover the cost of rebuilding your home a policy with replacement cost coverage will likely offer a better value in most cases since your insurance company would pay for replacement items in full however if you happen to feel secure in your ability to pay partially outofpocket to rectify potential damage it may be worth considering acv coverage while actual cash value coverage is the less expensive option in terms of your insurance premium keep in mind this policy will yield lower payouts since it considers depreciation what is the difference between actual cash value and replacement cash value actual cash value acv is based on the depreciated value of stolen damaged or otherwise destroyed property replacement cash value rcv does not consider depreciation and instead covers the cost of a replacement based on today’s prices while actual cash value tends to be cheaper in terms of your insurance premium it offers a much narrower reimbursement once a claim is paid out replacement cash value is more expensive upfront but guarantees to cover the cost of replacing a covered item in full acv is the most standardized coverage type for property insurance rcv is considered the more comprehensive variation what does actual cash value mean in insurance actual cash value works to reimburse you for lost damaged or stolen property by appraising the item based on its replacement cost minus depreciation so if your television is stolen and you need a replacement your insurance company will factor in the item’s age and subtract any depreciated value from your payout amount what does replacement cost mean in insurance replacement cost insurance pays for covered items at current market value without adjusting for depreciation in this case if someone steals your television from your home your insurance company will reimburse you for the retail value of what a comparable tv model costs today keep in mind that your provider will still subtract any outstanding deductible from your payout and that your reimbursement must comply with the coverage limits outlined in your policy what is my home’s full replacement cost to better understand what the full replacement is it’s important to differentiate between dwelling coverage and personal property coverage both are part of a homeowners insurance policy while dwelling coverage refers to the value of your home’s structure personal property coverage includes the belongings and personal items inside of your home with dwelling coverage the full replacement cost equals the total price to rebuild your property based on current construction material and labor prices for personal property coverage the full replacement cost is the total value of your personal belongings and the price of replacements meredith kucik is a writer with experience covering home warranties real estate personal finance and homeownership she has published work in local and national media publications across the home services category reaching consumers from homebuyers to home sellers to real estate professionals meredith graduated from the university of north carolina at wilmington with a bachelor’s degree in creative writing tori addison is an editor with over five years of experience in the digital marketing industry her includes communications and marketing work in the nonprofit governmental and academic sectors a journalist by trade she started her career covering politics and news in new york’s hudson valley her work included coverage of local and state budgets federal financial regulations and health care legislation