Replacement cost vs. actual cash value: the line that decides your claim check

Every homeowners claim starts with the same question: what does it cost to repair or replace what was damaged? Your policy then answers a second one: how much of that cost does the carrier pay? That is where replacement cost and actual cash value part ways.

Replacement cost

Replacement cost pays what it costs today to repair or rebuild with materials of like kind and quality, minus your deductible. Many carriers pay it in two steps: first the actual cash value, then the held-back depreciation once the repairs are finished and you send the invoice.

Actual cash value

Actual cash value is replacement cost minus depreciation. A 20-year-old roof with a 25-year life may be worth only a fifth of a new one, so the check can be a fraction of the contractor’s bid.

• Example: a $16,000 roof replacement, 80% depreciated, pays $3,200 at actual cash value before the deductible

• The same roof at replacement cost pays $16,000 minus the deductible, usually in two checks

• Some policies pay replacement cost on the house but actual cash value on the roof once it passes a certain age

What to check on your policy

Look for the words “roof surfacing” or “roof payment schedule” on your declarations page or endorsements. If you find them, ask your agent what your roof would pay today and what it would cost to switch to full replacement cost.