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Replacement Coverage

Replacement Coverage (vs. Actual Cash Value)
Insurance companies provide coverage for your property either through "replacement coverage" or "actual cash value coverage." Here's how they work: Let's say your 10-year-old roof is damaged in a bad storm and it's going to cost $10,000 to fix it.

If you have "replacement cost insurance" your insurance company will pay you the full $10,000 (minus your $250 deductible) to repair your roof.

However, if you have "actual cash value insurance" the company will give you only what a 10-year-old roof is worth, which might be only $4,000. You will have to pay the remaining $6,000 yourself.

Because it provides better coverage, replacement coverage costs more. It's also what's usually included in standard home policies. But always ask your insurance agent and read your policy to make sure you're getting replacement and not actual cash value coverage.

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