ACV vs. Replacement Cost Coverage: Understanding Your Options
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Written byBen Luthi
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Ben LuthiInsurance Writer
Ben Luthi is a Utah-based insurance writer for Compare.com. With more than a decade of experience covering various insurance and personal finance topics, Ben is passionate about helping people make smart decisions with their money. His work has appeared on a variety of well-known personal finance websites, including the Wall Street Journal, Fortune, Credit Karma, Yahoo! Finance, Experian, NerdWallet, Insurify, and many more.
Ben has been writing for Compare.com since 2025.
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Edited byMatthew Gross
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Matthew Gross is an editor at Compare.com. With a background in editing and SEO, he’s passionate about creating content that helps readers get the information they need to make more informed decisions. Prior to Compare.com, Matthew brought his user-centered approach to his work with global brands like Apple and Adobe.
Matthew graduated from Illinois State University, where he earned his bachelor’s degree in Journalism.
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In This Article
When shopping for homeowners insurance, one of the most important decisions you’ll make is choosing between actual cash value (ACV) and replacement cost value (RCV) coverage.
ACV pays the current value of your damaged property, while RCV pays what it would cost to replace items with new ones of similar quality.[1] Your choice directly affects how much you’ll receive from your insurance company after filing a claim. And it can mean the difference between covering your losses or paying thousands out of pocket.
We’ll explain the difference between ACV and RCV, their pros and cons, and tips for choosing the right fit.
Actual Cash Value (ACV) Explained
Actual cash value is the amount your insurance company will pay you after subtracting depreciation. Depreciation is the loss of value due to age, use, and wear and tear. This amount can be different from an item’s market value, or the amount you could sell it for.
For example, if your deck originally cost $20,000 and is 10 years old, your insurer might pay out $10,000. Having ACV coverage often lowers your premiums, but you may end up paying more out of pocket when filing a claim.
Replacement Cost Value (RCV) Explained
Replacement cost value (RCV) coverage pays the full cost to repair or replace your damaged property without deducting for depreciation.
Using the same example, if your 10-year-old $20,000 deck is damaged, RCV coverage would reimburse you for the full cost of installing a new deck of similar quality.
While RCV coverage usually costs more, it reduces your out-of-pocket costs when you file a claim.
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ACV vs. Replacement Cost: Key Differences
The biggest difference between ACV and RCV is how depreciation affects your insurance payout. Here’s a quick comparison:
Factor  | Actual Cash Value (ACV) | Replacement Cost Value (RCV) |
|---|---|---|
| Depreciation | Factors in age and wear | Doesn’t consider depreciation |
| Payout amount | Lower (current value) | Higher (full replacement cost) |
| Costs | Lower monthly cost | Higher monthly cost |
| Out-of-pocket expenses | Higher after a claim | Lower after a claim |
The key trade-off is straightforward — you can save money up front with an ACV policy, but it can leave you with substantial costs to cover if you file a property damage claim. RCV coverage costs more per month but provides more comprehensive protection when you need it most.
ACV vs. Replacement Cost: Real-World Examples
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To show you how these coverages work, let’s look at two common scenarios that show how your coverage choice affects your costs.
Scenario #1: Damaged roof
Let’s say your 15-year-old asphalt shingle roof suffers hail damage and needs to be replaced. The original roof cost $12,000, but a new roof today costs $20,000.
With depreciation factored at 60% for the old roof’s age and condition and a $1,000 deductible, here’s how each policy would pay out:
ACV coverage: Your ACV policy would pay $4,800 (40% of the original value), minus your $1,000 deductible, for a total payout of $3,800.
RCV coverage: Your RCV policy would pay $20,000, minus your $1,000 deductible, for a total of $19,000.
Your out-of-pocket difference: In this example, an ACV policy would cost you $15,200 more than an RCV policy.
Scenario #2: Damaged property
In this example, imagine that a kitchen fire destroys your 8-year-old appliances, including a refrigerator, stove, and dishwasher that originally cost a total of $4,000.
The damaged appliances have depreciated by 50%, for a current value of $2,000, and the replacement cost for equivalent new appliances is $5,500. You also have a $500 deductible. Here’s how each policy would pay out:
ACV coverage: Your ACV policy would pay $2,000, minus your $500 deductible, for a total payout of $1,500.
RCV coverage: Your RCV policy would pay $5,500, minus your $500 deductible, for a total of $5,000.
Your out-of-pocket difference: In this example, an ACV policy would cost you $3,500 more out of pocket than RCV coverage.
ACV vs. Replacement Cost: Pros and Cons
Understanding the advantages and disadvantages of actual cash value and replacement cost value can help you make the best decision for your home insurance. Here’s a look at some of the pros and cons.
Actual cash value
Pros
Lower monthly premiums
Ideal for older homes
Cons
Higher out-of-pocket costs with a claim
May not be able to afford similar-quality replacement materials
Replacement cost
Pros
Reduces out-of-pocket costs with a claim
Better protection for new and valuable items
Cons
Higher monthly premiums
May not be available for older homes[2]
ACV vs. Replacement Cost: Which Should You Choose?
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You should consider several important factors when choosing between ACV and RCV coverage. Here are some to keep in mind:
Budget and monthly premiums: If keeping your insurance premiums low is a top priority, ACV coverage is typically cheaper. Just remember that you’ll likely pay higher out-of-pocket costs after a claim.
Age and condition of your home: RCV coverage is often better for newer homes with newer building materials. Older homes may qualify for only ACV due to wear and tear or outdated appliances.
Value of personal belongings: If you own expensive electronics, appliances, or furnishings, personal property coverage with RCV can help cover the full cost to replace them. ACV accounts for depreciation, so you might need to pay more out of pocket for replacements.
Risk tolerance: If you’d rather avoid surprise costs after a loss, RCV offers more predictable protection. But if you’re comfortable covering part of the repair or replacement cost yourself, ACV could work for you.
How to Switch Between ACV and Replacement Cost Coverage
Insurance companies typically allow you to change coverage types at any time. Log in to your account or contact your insurance agent to talk about options and get quotes for both coverage types.
You may also consider getting quotes from other insurers. Comparing rates can help you make sure you find the right coverage for your specific needs.
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ACV vs. Replacement Cost FAQs
Deciding between ACV and RCV home insurance can be confusing, but we’re here to help. Below, we answered some common questions about the two types of coverage.
What’s better, replacement cost or ACV?
It depends. Replacement cost coverage is more expensive, but it covers the full replacement cost if you file a claim. ACV is cheaper, but you’ll likely pay higher out-of-pocket costs. The right option for you depends on your situation, budget, and coverage needs.
How do you calculate ACV from replacement cost?
To calculate ACV, subtract depreciation from an item’s replacement cost. Your insurance company bases depreciation on the item’s age, condition, and expected useful life.
Can you negotiate ACV with insurance?
Yes. You can dispute ACV calculations by providing evidence of your property’s condition, recent improvements, or comparable market values. That said, your insurer still makes the final decision.
Is replacement cost coverage more expensive?
Yes. Replacement cost value coverage typically costs more than actual cash value policies. But the extra up-front cost could save you thousands if you file a claim.
Is replacement cost coverage worth it?
It depends. For most homeowners, replacement cost coverage is more expensive but provides solid long-term value. That’s especially true for newer homes and valuable personal property.
Is functional replacement cost the same as ACV?
No. Functional replacement cost coverage pays for items of similar function but potentially different materials.[3] ACV factors in depreciation and pays the current value.
Related Articles
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Sources
- National Association of Insurance Commissioners. "What’s the Difference Between Actual Cash Value Coverage and Replacement Cost Coverage?."
- Insurance Information Institute. "Insurance Handbook."
- National Association of Insurance Commissioners. "A Shopping Tool for Homeowners Insurance."
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Ben LuthiInsurance Writer
Ben Luthi is a Utah-based insurance writer for Compare.com. With more than a decade of experience covering various insurance and personal finance topics, Ben is passionate about helping people make smart decisions with their money. His work has appeared on a variety of well-known personal finance websites, including the Wall Street Journal, Fortune, Credit Karma, Yahoo! Finance, Experian, NerdWallet, Insurify, and many more.
Ben has been writing for Compare.com since 2025.
Matthew Gross is an editor at Compare.com. With a background in editing and SEO, he’s passionate about creating content that helps readers get the information they need to make more informed decisions. Prior to Compare.com, Matthew brought his user-centered approach to his work with global brands like Apple and Adobe.
Matthew graduated from Illinois State University, where he earned his bachelor’s degree in Journalism.