Last reviewed: 3 October 2026
Home › Agent guides › Replacement cost vs actual cash value
Replacement cost vs actual cash value: how two regulators describe the difference
The short answer: the Texas Department of Insurance (TDI) says home policies provide either replacement cost coverage or actual cash value coverage. Replacement cost pays at current prices. Actual cash value pays replacement cost minus depreciation.[1] Depreciation means a decrease in value because of wear and age. This page explains the two terms and the arithmetic. It does not say which to choose.
The short version
- Replacement cost coverage pays to repair or replace your house and personal property at current prices.[1]
- Actual cash value coverage pays replacement cost minus depreciation.[1]
- Which one a policy has can differ for the house and for belongings, and by state and company. Washington's page says its defaults differ between the dwelling and personal property.[2]
The two terms side by side
| Feature | Replacement cost coverage | Actual cash value coverage |
|---|---|---|
| What it pays (TDI) | To repair or replace at current prices.[1] | Replacement cost minus depreciation.[1] |
| What depreciation means (TDI) | Not deducted from the replacement price in the example below.[1] | Depreciation is "a decrease in value because of wear and age."[1] |
| Payment on a house repair claim (TDI) | Most companies pay with two checks: the first for estimated repair costs minus depreciation and your deductible, the second for the amount held back after the bill for the finished job.[1] | The TDI page does not describe a payment sequence for actual cash value coverage. |
| Payment on personal property (TDI) | With replacement cost coverage you get two checks. The first is the actual cash value of the items; after you replace them, the company pays the rest of the claim amount.[1] | Actual cash value is the cost to replace the item minus depreciation.[1] |
TDI's worked example: a 10-year-old roof
TDI says to suppose you bought a new roof 10 years ago, the current price for a new roof is $10,000, and you have a $2,000 deductible.[1]
| In TDI's example | Replacement cost policy | Actual cash value policy |
|---|---|---|
| Value used for the payment | $10,000, the price of a new roof today[1] | $7,000, after depreciation[1] |
| Company pays after the $2,000 deductible | $8,000[1] | $5,000[1] |
| Your total out-of-pocket cost | $2,000[1] | $5,000[1] |
The $10,000, $7,000 and $2,000 figures are TDI's illustration of how the terms work. They are not typical roof costs, depreciation rates or deductibles.
How Washington describes the same terms
- Washington's OIC says replacement cost coverage "is standard on most homeowner insurance policies" and pays to repair or replace your property at today's cost without deducting for depreciation.[2]
- It says actual cash value coverage pays the amount to replace or repair your property minus how much it has depreciated. Its example is a $1,000 TV bought five years ago and damaged in a fire: the policy pays what the TV is worth today.[2]
- For personal property, it says a typical policy covers your belongings at actual cash value, and that to be reimbursed for replacement cost you need to buy replacement cost coverage.[2]
- It says a farm or ranch policy provides actual cash value coverage, and that replacement cost for a farm dwelling has to be asked for.[2]
Two more TDI details
- TDI says that with a replacement cost policy you usually must complete repairs within a certain period of time.[1]
- TDI says policies pay only up to their dollar limits on each coverage.[1]
How to verify this yourself
Find the replacement cost or actual cash value wording in your own policy and on its declarations page. Read the two regulator pages listed below. Ask your agent or insurer to show you which one applies to your house, your belongings and any other structures.
What this page does not cover
We read one Texas page and one Washington page. Other states' rules, and individual companies' policies, can differ, including how depreciation is calculated and what holdbacks apply. We do not cover claims deadlines, other kinds of policy, auto policies, or how much coverage to buy. We do not say which kind of coverage is better; the right answer depends on your policy, your property and your finances. This is general information, not insurance or legal advice. For your own policy, ask your agent or insurer, or contact your state insurance regulator.
Your next step
Find your policy's wording and write down, for the house and for belongings, whether it says replacement cost or actual cash value. If you cannot tell, ask your agent in writing. Our guide on how a claim works shows where depreciation can come up when you are paid.
Related checks
Our standard explains how we check an agent's license and disciplinary history. Check an agent reports our findings at category level, as a method and not a verdict. Neither reviews any insurer, plan or product. To confirm the person selling you coverage is licensed, see how to check an agent's license. More plain-language guides are in the agent guides.
When we will update this page
We re-read the sources when they change. If something here is out of date, tell us. Corrections are dated on the page.
References
- [1] Texas Department of Insurance, "Home insurance guide" (consumer bulletin), read 3 October 2026 — tdi.texas.gov/pubs/consumer/cb025.html
- [2] Washington Office of the Insurance Commissioner, "Learn how home insurance works", read 3 October 2026 — insurance.wa.gov/.../learn-how-home-insurance-works
What you can do next
- Check an agent's license yourself, step by step
- Check an agent (United States agents and brokers only) — see which ones we have checked
- See how we check — the rules and sources behind each result
- Report an error or request a correction
- Browse all agent guides