Understanding Home Insurance: Actual Cash Value vs. Replacement Cost Value



When it comes to your homeowner's insurance policy, it's crucial to understand the difference between Actual Cash Value (ACV) and Replacement Cost Value (RCV). These two coverages can have a significant impact on your claims, so it's important to know which one you have. In this blog, we will explain the differences between ACV and RCV, and why you should consider having RCV coverage for both your dwelling and personal property.

The Basics: Dwelling and Personal Property

Before diving into ACV and RCV, let's first understand the two types of property covered under a standard homeowner's policy: dwelling and personal property.


Your dwelling refers to the actual physical structure of your home, including the walls, roof, ceiling, flooring, and permanently attached cabinets. Essentially, it's everything that makes up your home's structure. Dwelling coverage provides protection for these components.

Personal Property

Personal property includes all the belongings that are not part of the physical structure of your home. This includes items like electronics, furniture, clothing, and toys. Personal property coverage ensures that these possessions are protected.

Actual Cash Value (ACV)

ACV, as the name suggests, pays you the current value of your property. It takes into account depreciation, meaning that if you bought an item three years ago, its value may have significantly decreased. ACV coverage will only reimburse you for what your property is worth today.

Replacement Cost Value (RCV)

On the other hand, RCV coverage pays you the amount it would take to replace your old property with new property at today's prices. This means that even if your property has depreciated, RCV coverage ensures that you can replace it with equivalent new items.

Understanding the Difference: An Example

Let's illustrate the difference between ACV and RCV with an example. Imagine you have $5,000 worth of electronics, including laptops, TVs, and sound equipment. You purchased them three years ago.

If you have ACV coverage and these items are stolen, the insurance company will assess their current value. Let's say they determine that the electronics are now only worth $2,500. You would receive a check for $2,500, which may not be enough to replace everything.

However, if you have RCV coverage, the insurance company will provide you with the amount needed to replace your stolen items with new ones. In this case, they would give you a check for the full $5,000, allowing you to replace all of your electronics.

The Importance of RCV

As you can see from the example, RCV coverage is the preferred option. It ensures that you are fully covered and can replace your belongings without incurring additional costs. While most homeowner's insurance policies automatically provide RCV coverage for the dwelling, it's essential to double-check.

Additional Options for Dwelling Coverage

Even if your policy offers RCV coverage for the dwelling, there are two additional options to consider:

1. Extended Replacement Cost

This option provides an extra 25% above and beyond the value of your dwelling coverage. It safeguards you against unexpected increases in repair or replacement costs. For instance, if your home is worth $100,000 and it costs $125,000 to rebuild, extended replacement cost coverage would provide the necessary funds.

2. Guaranteed Replacement Cost

This option ensures that your dwelling will be replaced regardless of the cost. Even if the price to rebuild your home exceeds the coverage limit, the insurance company will cover the entire expense. This guarantee gives you peace of mind, knowing that your home will be restored to its original condition.

Personal Property Coverage

While dwelling coverage often includes RCV automatically, the same cannot be said for personal property coverage. Many policies default to ACV for personal property. However, it is highly recommended to have RCV coverage for your personal belongings as well.


When it comes to your homeowner's insurance policy, choosing between ACV and RCV is crucial. Opting for RCV coverage, both for your dwelling and personal property, ensures that you can fully recover and replace your belongings in the event of a claim.

While most reputable insurance agents and companies offer RCV coverage, it's always wise to verify your policy to be certain. If you don't have RCV coverage, it's easy to add it for a small increase in your monthly premium. The peace of mind and protection it provides is well worth the investment.

If you have any questions or need further clarification on this topic or any other insurance-related matters, please call (404) 850-7501. We are more than happy to assist you.