Two Ways a Home Claim Gets Paid
When you file a home insurance claim, the check depends heavily on whether your policy pays replacement cost or actual cash value. On a large claim, the gap between the two can run to tens of thousands of dollars.
What Is Replacement Cost?
Replacement cost pays to repair or replace damaged property with new materials of similar kind and quality, with no deduction for depreciation. If your 15-year-old roof is destroyed by a storm, replacement cost pays for a brand new roof.
This is what you want on your policy. It costs more, and the examples below show why.
What Is Actual Cash Value (ACV)?
Actual cash value pays the replacement cost minus depreciation. Using the same roof example: if a new roof costs $25,000 and your old roof was 15 years into a 25-year lifespan, the insurer might depreciate it by 60% and pay you only $10,000.
You’d be responsible for the remaining $15,000 out of pocket.
How This Plays Out in Real Claims
Roof Damage (Most Common Dispute)
A North Shore homeowner with a 20-year-old architectural shingle roof suffers hail damage. New roof cost: $30,000.
- Replacement cost policy: Pays $30,000 (minus deductible) for a new roof
- ACV policy: Pays approximately $6,000–$12,000 after depreciation
For more on this specific issue, see our roof coverage guide.
Water Damage to a Finished Basement
Sewer backup destroys your finished basement. Restoration cost: $40,000.
- Replacement cost: Pays to restore the basement with new materials, up to your water backup coverage limit
- ACV: Deducts depreciation on your 10-year-old carpet, cabinets, and fixtures, potentially paying half or less
Personal Property
A fire destroys your living room furniture. Your 5-year-old couch cost $3,000 new.
- Replacement cost: Pays $3,000 for a comparable new couch
- ACV: Pays maybe $1,200 after depreciation
Where to Check Your Policy
Look at your declarations page for these terms:
- Dwelling coverage: Should say “replacement cost.” Some older or cheaper policies still use ACV
- Personal property: Check whether it’s replacement cost or ACV (many policies default to ACV for contents)
- Roof: Some carriers have started applying ACV specifically to roofs after a certain age, even on otherwise replacement cost policies
Extended Replacement Cost
Some policies offer extended replacement cost, which pays a percentage above your dwelling limit (typically 25-50% more) if rebuilding costs exceed your coverage amount. This is especially valuable in periods of construction cost inflation.
Guaranteed replacement cost goes further: it pays eligible rebuilding costs beyond the dwelling limit when you meet the policy’s rebuilding requirements. Extended replacement cost instead adds a stated percentage or amount above the limit.
The North Shore Factor
Homes in Wilmette, Winnetka, Glencoe, and Kenilworth often feature custom construction, period details, and materials that are expensive to source and install. Depreciation on these elements is particularly punishing under an ACV policy.
A century-old home with original plaster walls, custom millwork, and slate roofing cannot be adequately covered by an ACV policy. After depreciation, much of the repair bill would be yours.
What We Recommend
- Replacement cost on dwelling coverage: non-negotiable
- Replacement cost on personal property: worth the modest premium increase
- Extended or guaranteed replacement cost where the home’s construction and rebuilding needs call for it
- Watch for ACV roof endorsements that carriers add at renewal: ask your agent to flag these
Review Your Policy
Send us your declarations page, and we will tell you whether your dwelling, contents, and roof settle at replacement cost or actual cash value. Request a free review or call 847.242.1040.
Coverage We Write
Longmeadow Insurance is an independent agency in Wilmette with offices across Chicago and the suburbs. If any of this applies to your situation, we can review your current policy and tell you what it actually covers.
- Home insurance on the North Shore
- Flood and water backup coverage
- Umbrella insurance
- Personal insurance overview
Call 847.242.1040 or request a quote online.