Two homeowners have the same roof damage from the same storm. One gets a check big enough to replace the roof. The other gets a check for a fraction of that. The difference usually comes down to two phrases buried in the policy: replacement cost and actual cash value.
The difference in one sentence
- Replacement cost pays what it costs to repair or replace damaged property with new materials of similar kind and quality.
- Actual cash value (ACV) pays replacement cost minus depreciation, which is the value lost to age and wear.
A Gulf Coast roof example
Say a storm damages your 15-year-old roof and replacing it costs $15,000. If the insurer figures the roof has lost 60% of its value to age, here’s how the two approaches compare before your deductible:
| Replacement cost | Actual cash value | |
|---|---|---|
| Cost to replace | $15,000 | $15,000 |
| Depreciation | $0 | –$9,000 |
| Payout before deductible | $15,000 | $6,000 |
Then subtract your deductible. With a percentage wind or named storm deductible, an ACV roof claim can shrink to very little.
Watch for roof schedules
Some policies cover the house at replacement cost but pay for the roof on an ACV basis or on a schedule based on the roof’s age. This is increasingly common for older roofs in storm-prone areas. Look for the words “roof surfacing,” “payment schedule,” or “actual cash value” in your policy, or ask your agent directly how your roof would be paid.
How replacement cost claims are usually paid
Even on a replacement cost policy, many insurers pay the ACV amount first, then pay the rest (called recoverable depreciation) after you complete the repair or replacement and send proof. Keep receipts and know the deadline for finishing the work.
Your belongings work the same way
Personal property coverage can also be either ACV or replacement cost. With ACV, a five-year-old TV or couch is paid at its depreciated value. Replacement cost on contents usually costs a little more and is often well worth it.
The bottom line
Ask two questions: Is my house covered at replacement cost? And is my roof paid at replacement cost or on an ACV or age-based schedule? The answers can change your claim check by thousands of dollars.
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