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Texas Department of Insurance
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Home policies: Replacement cost or actual cash value?


Most home insurance policies pay to repair or rebuild your home based on current costs. This is called replacement cost coverage. But some policies pay less based on the age and condition of your home (depreciation). This is called actual cash value coverage. Policies with actual cash value coverage cost less, but they also pay less when you have a claim. Knowing the difference can help you buy the coverage that’s best for you.

How does it affect a claim payment?

Let’s look at how your insurance company will pay for roof damage depending on the type of coverage you have. The house in these examples is insured for $200,000 with a 2% ($4,000) deductible. The entire roof was damaged by a storm that insurance covers. The value of your house and amount of your deductible may be different.

Replacement cost coverage

If it costs $10,000 to replace the roof, a replacement cost policy will pay the same amount no matter how old the roof is:

Cost to replace roof      $10,000

Minus deductible          - $4,000

Policy would pay          $6,000

Actual cash value coverage
If it costs $10,000 to replace the roof, the amount an actual cash value policy will pay depends on how old the roof is:
5-year-old roof 10-year-old roof 20-year-old roof
Actual cash value of roof $8,500 $7,000 $4,000
Minus deductible - $4,000 - $4,000 - $4,000
Policy would pay $4,500 $3,000 $0


Questions? Call us at 800-252-3439.

Last updated: 1/24/2024