Cash Value Vs Full Replacement Cost Insurance

by Hank Coleman

Cash value vs full replacement cost insuranceWhen looking at insurance policies for your home, you have a ton of different options and amendments to choose from. One of the most neglected details but the most important should you ever file a claim is the difference between choosing the actual cash value or full replacement cost.

Should the need arise to file a claim for your home, your insurance company will use one of these two methods to decide how much to pay you. And your choice when it came to checking which box can make a huge difference. Here is what you need to know about each option when insuring your home.

What Is Actual Cash Value

The actual cash value is a method valuing insured property in which depreciation is subtracted from the actual replacement cost. This depreciation is usually calculated by establishing a useful life of an item and determining what percentage of that useful life remains. The useful life of most household items is standardized across the insurance industry.

For example, say you owned a 50” plasma television that you purchased five years ago for $1,000. Let’s say you could buy the same size and quality television today for $750. The standard useful life for televisions is 10 years. So, your Actual Cash Value for the television would be $375 ($750 times 50%).

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What Is Full Replacement Cost

On the other hand, you can opt to have the full replacement value when insuring your home. This refers to the amount it would cost to replace an asset at the present time, according to it’s worth. This is different from the actual cash value, which is more like current market value.

With this option, a common stipulation is that the actual asset must be repaired or replaced before the cost can be paid.

Using the above example, the insured would receive the $750, which is the current day value of the same television.

Which Insurance Policy Is Better?

If you’re deciding which is better, it is important to note that insuring for the full replacement cost usually costs more on your annual insurance premium. As such, you should weigh the costs of a higher premium, to possibly paying more if you should need to file a claim. I am a big fan of purchasing insurance that provides full replacement cost for your possessions should you need to file a claim.

What about you? Have you ever been burned by not having full replacement cost on your possessions?

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]

Hank Coleman has written 581 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.

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{ 6 comments… read them below or add one }

Chic Furniture

I was very pleased to find this site. I wanted to thank you for this great read!! I definitely enjoying every little bit of it and I have you bookmarked to check out new stuff you post. Big thanks for the useful info……..


Paul @ The Frugal Toad

We have always had replacement cost insurance on our home. Be sure your insurance agent is using local labor and material cost estimates in the calculation as construction costs can vary from region to region.


Doug P.

A great post. I want to offer my personal experience for what it is worth. I live in So Cal. My homeowner’s insurance is with AAA (Auto Club of So Cal). I have discussed this with them on multiple occasions and they have assured me that my insurance is for full replacement value. BTW, they have been great to deal with on the few small claims that I have had and I believe that I would have a similar experience on a full loss.

You may have heard of the fire storms that So Cal has experienced. I am very familiar with the 2003 and 2007 fire storms that hit the greater San Diego area. I recently met an attorney that became a consumer advocate for the insured after she and scores of her neighbors suffered losses in the 2003 wild fires. I asked her for her opinion regarding who I should consider for my homeowner’s insurance (or at least who I should avoid). She was professional and did not give me an opinion, except the following. She asked who carried my insurance with. When I told her that it was AAA she indicated that it was definitely one of the best out there (confirming what I already thought to be the case).

This probably sounds like I work for AAA. I don’t. I just wanted to share my .02 for anyone that may be shopping. Good luck. Feel free to email me.


Modest Money

I usually have replacement cost insurance on my car, but I didn’t realize they offer the same kind of insurance for a home. For my car the extra cost is fairly minor. So it is definitely worth spending the extra money to get the replacement value. I would think it would be the same case with a home, although you’re much less likely to need to replace the whole house like you would with a wrecked car.



I have had very few (2) insuarance losses in my life. I prefer replacement cost insurance over actual cost. I have a $1,000 deductible which helps offset the higher cost.


Dylan Barrett

It’s always difficult to choose one when you will get lots of options. I always prefer replacement cost insurance. It costs less than the original purchase price to repair or replace the item. The insurance company provides payment for the actual cost of purchasing a new, identical or similar item.


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