Home Insurance: Replacement Cost Value vs. Actual Cash Value

There are two main types of home insurance available on the market these days according to the amount of protection the insurance provide. The first one is called Replacement Cost Value policy. With this type of policy, you will get compensated according to the amount of money you need — based on the insurance your own calculations as well as the insurance company’s — to repair the house in the event of disaster. With Actual Cash Value policy, you don’t even have to worry about calculating the amount of repair cost you need because the insurance company will simply look at your house’s current market value can give you similar amount of compensation.

Each home insurance policy type has advantages and disadvantages of their own. With Replacement cost Value policy, you have a great chance of rebuilding your home back to its current state with the amount of compensation you get. As long as you pay close attention to replacement cost limits usually stated in the insurance policy, the insurance company will cover for your home’s damages. The bad news is, you need to maintain your home to keep up with frequent building codes set by local government. The insurance company will not pay for the damages if they find your house not abiding to these codes.

With Actual Cash Value based policies, you can get the right amount of compensation according to the current value of your house. It may or may not be enough to rebuild your home, but you don’t have to deal with the complications of maintaining home structures to meet local building codes or other complications at all. Make sure modifications you make to the property add market value, and that the insurance company knows the amount of added value. Most of the time you will have more than enough compensation money to rebuild your house to its previous state, even better.