The Difference Between Actual Cash Value and Replacement Cost Coverage


According to, Replacement Cost Coverage and Actual Cash Value refer to the type of replacement that your Florida homeowners insurance policy offers for your dwelling and contents coverage. What is the difference between these two coverages? Replacement Cost Coverage is the most popular coverage included in a Florida home insurance policy. In the case of damage to your home and/or its contents, you will receive the amount it was worth when it was purchased without the decrease in value. Though usually cheaper, Actual Cash Value includes the decrease in value and pays you what the contents and/or home was worth before the damage.

Whether you choose a Replacement Cost or Actual Value Cost to be included in your Florida home insurance policy is your personal choice. However, taking the time to learn and understand the differences between these two coverage options will help you make the best decision for your personal insurance needs. The following is an illustrative example provided by to help further your understanding:

The Smiths and the Johnsons are next door neighbors. Their homes are exactly the same size, built in the same year (1990), and have the exact same floorplan. Neither family has had the roof replaced, but the roof originally cost $15,000. The Smiths have a replacement cost policy, while the Johnsons have an actual cash value policy.

One night in 2009 a terrible storm tears through their town, completely destroying the Smith’s and the Johnson’s roof. Both the Smiths and the Johnsons have a $500 deductible, and both roofs incurred $15,000 of damage.

Replacement Cost Claim Settlement

To replace the entire roof, the Smiths are only responsible for their deductible of $500. With replacement cost, the insurance company will pay the full cost of replacing the roof minus the deductible – which was the value of the roof at the time of the storm. Thus the Smith’s homeowners insurance policy will cover $14,500 for repairs ($15,000 cost minus the $500 deductible) and the Smiths will pay the $500 deductible.

Actual Cash Value Claim Settlement

The Johnsons, on the other hand, aren’t quite as lucky. The roof on their home is 19 years old. When the roof was originally installed, it was worth $15,000. But now, due to weather and age, it is only worth about $7,000. In other words, it has depreciated by $8,000. The Johnson’s insurance policy will cover the damage to their roof, less their deductible and less depreciation.

The Jonhsons need to pay $8,500 to repair their roof, a full $8,000 more than the Smiths. The insurance company will only provide $6,500 of the cost to the Johnsons. With an actual cash value policy, the insurance company is only responsible for paying damage done to the home, less the deductible and less depreciation. Thus the insurance company starts with the $15,000 repair cost minus $8,000 depreciation and the $500 deductible, paying only $6,500.

In order to make sure you are making the right insurance decisions for your Florida home insurance policy, check with one of our agents here at Westgate-Jones Insurance Agency today at 352-787-7548 and visit our website at