What is Actual Cash Value versus Replacement Cost?

I spoke to a today client that asked “I have a homeowner’s policy that is Actual Cash Value what does that mean?” Well let’s define replacement cost first. Replacement Cost Value (RCV) is The amount of money needed to repair your home at today’s prices of building supplies; or replace your belongings at today’s cost of the similar or like item. Construction costs for 2024 are up 25-28% since pre-2020. Replacement cost has nothing to do with Appraisal Value or Market Value, these are different things completely. Now that we have established what Replacement Cost Value is, what is Actual Cash Value (ACV)? Actual Cash Value is a valuation method that takes into account depreciation of personal property or belongings. To figure Actual Cash Value first replacement cost is calculated and then depreciation is calculated using age, condition and loss of value because of use. Actual Cash Value policies are often a more economical way to go however, when purchasing this kind of policy you need to take into account that were a loss to occur to your home and you are expecting to be able to rebuild as the property is currently you may have to come out of pocket. Talk to your agent today or at your renewal to be sure that your home is covered to value of replacement cost or to value for actual cash value.