When filing an insurance claim, small differences in your policy’s language can have a big impact on how large of a settlement you receive. When replacing lost or damaged property, understanding the difference between replacement cost and actual cash value is a vital distinction.


Replacement cost coverage will provide you with the dollar amount you would need to replace the damaged property, minus the deductible on your policy. This coverage does not account for depreciation. So, if a tree were to fall and crush your five-year patio furniture, the insurance company would provide a payout so you could buy the equivalent of a new model. Please note that what qualifies for replacement cost settlements can vary from policy to policy.

It is important that you keep replacement costs accurate and up to date. Saving receipts and pricing information will help you maximize your settlement amount.


Actual cash value takes the replacement cost of the damaged item into consideration, but then accounts for depreciation. Factors like age, wear and tear prior to the accident, or obsolete technology will decrease the value of the damaged item. An actual cash value payment will subtract this depreciation from the amount you would need to replace it. What counts toward depreciation will vary depending on the damaged items.


The differences between replacement cost and actual cash value can greatly influence how much you receive during a settlement, as well as how much you pay for your premiums. By working with a qualified insurance agent, you can determine which option will be best for protecting your property.