Actual Cash Value Home Insurance

Actual cash value home insurance is one of the two ways you can pay for home insurance. The other is full replacement cost. Actual cash value looks at the original cash value of the home or other piece of property and then depreciates the value according to the age and condition of the item. Of the two, actual cash value homeowners insurance has the lowest premiums, but replacement cost coverage provides a more accurate settlement. Compare quotes for full replacement and actual cash value home insurance with our free ZIP code search below.

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Natasha McLachlan is a writer who currently lives in Southern California. She is an alumna of California College of the Arts, where she obtained her B.A. in Writing and Literature. Her current work revolves around insurance guides and informational articles. She truly enjoys helping others learn more about everyday, practical matters through her work.

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

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Reviewed by Laura Walker
Former Licensed Agent

UPDATED: Jul 16, 2021

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Home insurance claims may be paid in one of two ways, actual cash value or full replacement cost. Of the two, actual cash value has the lowest premiums, but full replacement cost provides a more accurate settlement. To give you an idea of why actual cash value insurance costs less, it might help to explain what this type of insurance settlement means and why it is set up the way it is.

Actual cash value looks at the original cash value of the home or other piece of property, examines the condition it is in and then depreciates the value according to the age of the item. The cost of any piece of property will always be lower than the amount you originally paid, and will usually fall far short of the cost to replace the item at current market rates.

Because the insurance company is not going to be paying out the amount that the item is insured for, they are able to reduce the premiums. People who are trying to fit home insurance into a stringent budget might want to consider actual cash coverage insurance, but they should keep in mind that the savings may be appealing today but the payout is likely to be very disappointing if a claim has to be filed.

The term “actual cash value” can be misleading, and a lot of people think that this type of payout means they will get the actual receipt amount they paid for the item, but that is the original cash value, not the actual vale by current standards. Do not be fooled by insurance agents who want to sell you actual cash value insurance under the guise of it being a complete coverage option. Actual cash value is very limited in what it will pay to replace, and in most cases you will end up spending a great deal out-of-pocket regardless of how much insurance you purchased.

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