What Is The Difference Between Replacement Cost Vs. Actual Cash Value?
Replacement Cost is the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality, without deducting for depreciation. Depreciation is the decrease in home or property value since the time it was built or purchased because of age or wear and tear. Many insurers require homeowners to insure their homes for at least 80% of the replacement cost. If the homeowner fails to insure for at least that, a penalty is applied to partial losses. For example, if it would cost $50,000 to replace your home and it is insured for $40,000 (80%), and a fire causes $25,000 worth of damage, then your insurance company will pay the full $25,000. On the other hand, if your $50,000 home is insured for $30,000 and you suffer a $25,000 loss, your company would pay for only part of the loss and you would have to pay for the balance yourself. It may therefore be advisable to insure your home at a minimum of 80% of its replacement cost. Check with your agent o
