{"id":1433,"date":"2022-12-16T23:17:00","date_gmt":"2022-12-16T23:17:00","guid":{"rendered":"https:\/\/www.freeway.com\/knowledge-center\/?p=1433"},"modified":"2025-01-17T17:02:30","modified_gmt":"2025-01-17T17:02:30","slug":"types-of-coverage-replacement-value-vs-actual-cash-value","status":"publish","type":"post","link":"https:\/\/www.freeway.com\/knowledge-center\/auto\/types-of-coverage-replacement-value-vs-actual-cash-value\/","title":{"rendered":"Types of Coverage: Actual Cash Value vs Replacement Cost"},"content":{"rendered":"

Whether you are purchasing homeowners, renters, or <\/span>auto insurance<\/span><\/a>, there are two types of coverage that you will need to consider: Replacement Value and Actual Cash Value. In most cases, Actual Cash Value is the standard that is included in the insurance policy \u2013 and it is also the least expensive. However, it is worth considering the value of the asset (car or personal items in your home) that you are insuring to determine which insurance coverage is right for you.<\/span><\/p>\n

First, it\u2019s important that you understand what the difference is between them. Here is a basic explanation of Replacement Value and Actual Cash Value insurance.<\/span><\/p>\n

Replacement Value<\/span><\/h2>\n

Replacement Value insurance allows you to replace your stolen or totaled car with a similar car at the current market value \u2013 no matter the age and condition of the car you had. For example, if you purchased a brand new car three years ago and it had substantial mileage or wear and tear at the time you were in an accident, your insurance company would pay out enough to purchase a current model of the car you bought three years ago.<\/span><\/p>\n

Actual Cash Value<\/span><\/h2>\n

Actual Cash Value coverage will pay out what your 3-year-old car was worth at the time that it was damaged or stolen. Actual Cash Value insurance will take into account that you owned the car for three years and that it had a certain amount of mileage and wear and tear, which means it will not be valued at the same price when you initially bought it since all cars depreciate in value. If you want to replace your damaged or stolen car with a new and similar model, you will have to use some of your own money to make up the difference since the insurance payout will not be enough to cover the full cost of a new car.<\/span><\/p>\n

How Does Your Insurance Calculate Actual Cash Value?<\/span><\/h2>\n

The typical ACV calculation depends on the replacement cost and depreciation. We\u2019ve discussed the first factor, so what about the second? Depreciation can be determined by the expected lifetime of the item (car, TV, laptop, couch and other personal belongings), which will help calculate how much its price decreases by year of usage.<\/span><\/p>\n

Let\u2019s say you have a $500 camera, which now has 2 years since your purchase. It has a life expectancy of 10 years. With this information we can see:<\/span><\/p>\n