Defining Actual Cash Value

amount of money to replace your entire homeGathering homeowner quotes to decide which insurance company to go with involves a lot more than just calling for information about the cheapest rates available. To accurately compare home insurance quotes, you’re going to have to get yourself versed in some of the language that insurance agents use, and what those terms can mean for you if you ever have to actually exercise a claim for coverage.

Actual Cash Value
One of the terms that’s most often confused by customers shopping for homeowner quotes is “actual cash value.” You wouldn’t think this relatively simple term could be the cause of so much trouble and misunderstanding, but once you start to look at things like an insurance company, they tend to get a bit distorted. “Actual cash value” is a controversial term in the lexicon of home insurance agencies, precisely because the simplicity of the words lends it to interpretation.

What Does It Mean?
In a nutshell, if your home is destroyed, the insurance company will replace it in one of two ways: by paying you the replacement cost, or the actual cash value. The definition of “actual cash value” is the amount of money it would take to replace your entire home with a home of the same quality, made out of the same materials, less depreciation—whereas replacement cost doesn’t account for depreciation and is seen as the far better deal for the homeowner. Bear this important difference in mind the next time you compare home insurance quotes. While you might be saving money on premiums in the short term, you could end up with the short end of the stick if your home is destroyed and your insurer won’t pay you the full cost of replacement.