Home insurance companies utilize one of two ways of valuing your property for claims purposes: the actual cash value of the home or its replacement cost. Some insurers offer only one type or the other, while others offer a combination of the two. The way your home is valued could affect how much coverage you need, so Cundiff & Company Insurance in Somerset, KY, explains the difference between the two and how they work. This information should help you accurately calculate your coverage needs.

The Difference Between Actual Cash Value & Replacement Cost

Replacement Cost

Replacement cost is a measure of how much it would cost—in today's dollars—to rebuild your home, as-is, with materials identical to the original construction. Replacement cost typically takes into account the home's square footage, cabinets and fixtures, exterior covering, and roofing materials. It does not consider the age of the materials or depreciate their value. Because it often results in a higher home insurance payout amount than Actual Cash Value does, this type of coverage typically costs a bit more.

Actual Cash Value

The Actual Cash Value method calculates losses similarly, but it includes depreciation. In other words, it pays out the value it would take to return the home to the state it was in before the damage occurred, not to a new state. For instance, if the roof is 15 years old at the time of the claim, the Actual Cash Value will be reduced accordingly to compensate for the 15 years of wear the roof has endured. For this type of valuation, it's important for you to keep receipts of work done and dated photographs of the home that show it was in good condition.

To discuss your home insurance coverage options with an experienced insurance agent, contact Cundiff & Company Insurance. They've been serving homeowners in and around Pulaski County for more than 40 years, and their agents specialize in home, auto, business, and life insurance. Visit their website to learn more about their home insurance options, and call (606) 679-8379 to request a quote.