Understanding Homeowners Insurance Terms: Replacement Cost vs. Actual Cash Value 

Understanding Homeowners Insurance Terms: Replacement Cost vs. Actual Cash Value 

Terminology in your homeowners insurance policy can be mystifying if you aren’t familiar with the industry glossary. Knowing what different terms mean can help you be fully informed when choosing your level of coverage, and can prepare you to know your rights under your policy in case of a loss.

Actual Cash Value (ACV) 

Actual Cash Value coverage means that your insurance company agrees to pay you the depreciated value at the time of the loss. ACV equals the original cost of the item, minus depreciation, which takes into account the loss of value over time due to aging and usage (wear and tear).

For example, a 5 year old item you use regularly might be covered at actual cash value, since it is no longer worth the same amount as a brand new item. You were able to use it for five years before losing it, so your settlement only covers the value left in the item.

Replacement Cost

 (RC)

If your policy coverage states full replacement cost for losses caused by a covered event, it generally means the coverage is high enough to replace the lost item with a new one comparable to the original. RC = the cost of a comparable item bought new, in the present day, with inflation taken into account.

You may be asked by your adjuster to provide proof of the value of high priced items, including:

• Item description (including make/model/serial number if applicable)
• Place and date of purchase, and original cost (receipt, if available)
• Current cost to replace (three different sources if possible)
• Photos of the original item (if applicable or available)

As a general rule of thumb, creating an exhaustive home inventory list and saving all documentation for items that might need to be replaced can provide you with proof of your belongings’ value in case you ever have to file a homeowners insurance claim.

The Olympus Difference

Many policies exclude certain items from coverage or specify ACV coverage only. Olympus has broad coverage for many common items included in standard HO3 homeowners policies and provides options for additional coverage through endorsements such as Spartan Enhanced Coverage.

Standard HO3 policies from Olympus will typically cover the following items, commonly under covered or excluded completely under many policies in Florida:

• RC (replacement cost) for pool screen enclosures 
• RC (replacement cost) for outlying buildings like sheds or boathouses
• ACV (actual cash value) for detached structures like fences or docks

Ask your agent about what items are covered and which are not, and when RC or ACV apply under the terms of your policy.

About Olympus Insurance Company

Headquartered in Palm Beach Gardens, FL and founded in 2007, Olympus Insurance Company specializes in Florida property insurance. Through its independent agency force, Olympus insures $40 billion worth of residential and investment property including homes, condos, rental property, and valuable personal property, with umbrella coverage and Spartan Enhanced Coverage available. Coverage for individual risks up to $5 million in total insured value is provided on one of the most comprehensive coverage forms in the industry.

For more information, visit olympusinsurance.com.

This article is for informational purposes only and does not form a part of, replace, change or amend any terms, conditions, provisions or language within your Olympus Insurance policy. We encourage you to read your entire policy.