A simple example
| Replacement cost | Actual cash value | |
|---|---|---|
| 8-year-old TV (new one costs $1,000) | $1,000 minus deductible | Maybe $250 minus deductible |
| 15-year-old roof (new roof $15,000) | About $15,000 minus deductible | Much less, after depreciation |
Illustration only. Depreciation schedules vary by insurer.
How replacement cost claims are paid
Many insurers first pay the actual cash value, then pay the rest (the “recoverable depreciation”) once you’ve repaired or replaced the item and shown receipts. Keep records and check the deadline in your policy for completing repairs.
The 80% rule
Many policies require you to insure your home for at least 80% of its replacement cost to receive full replacement-cost payment on partial losses. If you insure for less, the insurer may reduce what it pays on a claim. Review your dwelling limit regularly, especially after renovations or big rises in building costs.
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Sponsored listings. FindBestInsurance may be paid when you click them.Extended and guaranteed replacement cost
- Extended replacement cost pays a set percentage above your dwelling limit (often 25% or 50%) if rebuilding costs more than expected, for example after a regional disaster.
- Guaranteed replacement cost pays the full cost to rebuild even above your limit. It’s less common and more expensive.
- Ordinance or law coverage pays to bring a rebuilt home up to current building codes.
Watch your roof
In storm-prone states, many insurers now pay older roofs only on an ACV basis or a depreciation schedule, even if the rest of the policy is replacement cost. Check your declarations page for roof terms.
Which should you choose?
For most homeowners, replacement cost on both the dwelling and belongings is worth the extra premium. ACV can make sense for a very low-value property or if you’d struggle to pay a higher premium, but understand how much less a claim would pay. See home insurance costs.
Frequently asked questions
What is the difference between replacement cost and actual cash value?
Replacement cost pays to replace with new items of similar quality. Actual cash value subtracts depreciation, so it pays less for older items.
Is replacement cost worth it?
For most homeowners, yes. It costs more, but claims pay out much more, especially for belongings and roofs.
What is the 80% rule?
Many policies require you to insure at least 80% of your home’s replacement cost to receive full payment on partial losses.
What is extended replacement cost?
Extra coverage, often 25% to 50% above your dwelling limit, if rebuilding costs more than expected.
Sources
- Insurance Information Institute: What is covered by a standard homeowners policy?
- NerdWallet: The average home insurance cost in the U.S. for 2026 (updated May 6, 2026)
Figures checked November 7, 2026. Insurance rules and prices change and vary by state and insurer; confirm details with the insurer or your state.