When it comes to what your home is worth, you’ll hear the terms “actual cash value” and “replacement value” used frequently. Although they both relate to what your home is worth, there are essential differences between the two terms and understanding these differences is an important part of understanding your home insurance policy, too!

Replacement Cost Value

In the event your home was completely destroyed – whether it’s from a fire, a storm, or another event – the replacement cost value is the amount of money you’d need to restore it to its original condition in rebuilding it in the same spot.

Actual Cash Value

The age and condition of your home will be taken into account when the insurance company determines its actual cash value. The actual cash value of your home is determined by taking the replacement cost value and subtracting any depreciation of the home.

Home Value and Insurance

Some home insurance policies insure your property at replacement cost value while others insure houses at their actual cash value. So, if your home would cost $400,000 to rebuild today, that’s how much your replacement cost value would be. If your policy uses its actual cash value, however, any depreciation that takes place by the time you make a claim would be subtracted from that $400,000.

Similarly, when your home is insured at actual cash value and it has depreciated over time, you won’t have enough insurance to rebuild it to its original state. But that means you could still receive the actual cash value of the home that was destroyed and use that money to buy or build a different house.

Because each policy is different, be sure to speak to your insurance provider about the specific details of your policy so you know exactly what kind of coverage you have.

If you’re ready to find a new home insurance policy that gives you the coverage you need, contact ASA Insurance!