Actual cash value (ACV) pays what your damaged item was worth at the time of the loss, after depreciation. Replacement cost pays what it costs to buy a new item of similar kind and quality today. On a claim, the difference can be thousands of dollars.
A simple example
A fire destroys the sofa you bought four years ago for $1,200. A comparable new sofa costs $1,300 today, and your deductible is $500.
| Actual cash value | Replacement cost | |
|---|---|---|
| Value used for claim | Depreciated value, e.g. $500 | Cost of a new equivalent: $1,300 |
| Minus $500 deductible | $0 | $800 |
Depreciation figures are illustrative; insurers use their own schedules.
Multiply that across everything in your home, much of it several years old, and the gap gets large quickly.
How replacement cost claims are often paid
Many insurers pay a replacement cost claim in two steps: first the actual cash value, then the rest (the “holdback”) once you actually replace the item and send a receipt. Keep your receipts, and check how long your policy gives you to replace items.
Which should you choose?
For most renters, replacement cost is worth it. It typically adds only a modest amount to your premium, and it means your payout can actually refurnish your home. ACV can make sense only if your belongings are few and inexpensive and keeping the premium as low as possible matters most.
How to check what you have
Look at your policy’s declarations page for the personal property section. It will say “replacement cost” or “actual cash value,” or list a replacement cost endorsement. If it doesn’t say, ask your insurer.
Related: How much renters insurance do I need?
New to this? Start with What is renters insurance?
This site offers general information, not insurance or legal advice. Coverage, prices and rules vary by insurer, policy and state, so always read your own policy and ask your insurer or agent about your situation.