What Actual Cash Value Means in Home Insurance Claims
When your home insurance claim settles for less than expected, actual cash value may be why. This calculation method accounts for depreciation—the reduction in value from wear, age and use.
When your home insurance claim comes in lower than you expected, the reason may be a term buried in your policy: actual cash value. Insurers that settle claims on an actual cash value basis account for the fact that older belongings, like an eight-year-old washing machine, aren't worth what they cost brand new, paying only a percentage of replacement cost rather than the full cost of a new item. For the dwelling itself, some insurers instead sell 'extended replacement cost' policies that pay a set percentage above the dwelling limit, 20% or more depending on the insurer, if rebuilding costs rise unexpectedly, and a few still offer 'guaranteed replacement cost' policies that pay whatever it costs to rebuild the home as it was, though neither type pays for a house better than the one destroyed.
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