Replacement cost vs. actual cash value: how your claim would be paid
Two homes can carry the same coverage limit and still be paid very differently after a loss. The difference is often whether the policy settles at replacement cost or actual cash value.
The definitions
- Replacement cost pays what it costs to repair or replace damaged property with new property of similar kind and quality, up to your limit.
- Actual cash value (ACV) pays replacement cost minus depreciation, which reflects age and wear.
Why it matters for belongings
For a 10-year-old sofa or an older TV, the depreciated value can be far less than the cost of buying new. Check whether your personal property coverage is replacement cost or ACV.
Your dwelling limit is a separate question
Even with replacement cost, a claim is capped by your dwelling limit. If construction costs have outpaced your limit, you could be underinsured after a major loss. Some policies offer extended or guaranteed replacement cost endorsements; ask what yours has.
Frequently asked questions
Which is better?
Replacement cost generally pays more after a loss, but usually costs more. The right choice depends on your situation.
Where is this shown?
Your policy form and declarations page indicate how dwelling and personal property claims are settled.
Sources
General information only, not advice about any specific policy. Your policy wording controls. Last reviewed November 2026. [Verify each figure and source link before launch.]