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Replacement Cost Value vs. Actual Cash Value

There’s more than one way to assess the value of your stuff: replacement cost and its actual worth.


If you’ve ever sold something so you wouldn’t have to move it to a new place, you likely understand a simple economic truth about the value of the things we own: They’re often not worth anywhere near what we paid for them.

Still, if you understand that basic equation, you’ve got a solid head start on understanding how an insurance company can determine how much to reimburse you for losses under a renters insurance policy.


Replacement cost value (RCV) Actual cash value (ACV)
New flatscreen TV Old TV
Reimburses you for lost property at a rate equal to what it would cost to replace the property today. Reimburses you for lost property at a reduced rate because your used item is worth less than a new version.
You get enough money to buy a new version of what you lost. You get money to offset the cost of replacing your item, but you will need to pay the difference.

Renters insurance policies using the RCV approach generally cost more than those using the ACV approach, all other policy attributes being equal, but you generally receive more for covered losses under an RCV policy. Both approaches can work if you understand which one you have and are comfortable with the cost/benefit tradeoff.

Key Takeaway: RCV usually costs more and pays you more for covered losses. When choosing between RCV and ACV, find the right balance between cost and protection.