We get asked this question a lot! Here’s the low down…

Actual Replacement Cost. If you have a claim and decide to repair or replace your lost or damaged property, we’ll cover this no matter how much it costs and without any deduction for depreciation (wear and tear from its use).

Actual Cash Value. If you have a claim and decide not to repair or replace your lost or damaged property, we can pay you cash for the cost of the item, taking into consideration its condition at the time of loss. For example, if you had a bicycle that was 10 years old, we’d price it based on its age and used condition. The value of the item is reduced because of normal wear and tear over time.

Actual Cash Value vs. Replacement Cost 

Replacement Cost. The number one reason to go for this option is that if something happens to a piece of your property, it’ll be replaced with a dollar amount equal to what you’d need for a similar, new product of like kind, quality, and usefulness. For example, if you lose a 5-year-old television in a fire, it’ll be replaced with a new TV of like kind, quality, and usefulness.

The downside to replacement cost? Your premium will probably be higher than a policy that has Actual Cash Value.

Actual Cash Value. The main benefit to choosing Actual Cash Value is that your premium will likely be lower than with Replacement Cost.

But – and here’s the main con – with Actual Cash Value, you won’t receive sufficient funds to purchase a new item of the same value as the item you lost. You’ll only receive its depreciated value.

For example, under a home insurance policy, if your 10-year-old bike was stolen, we’d price your claim payout based on its age and used condition. In other words, if you wanted a brand new model to replace the old one you’d be on the hook for the difference between your payout and a brand new bike.