Header bg
  • section background

    Insurance 101: Replacement Cost vs. Actual Cash Value

    Hero bg 2
    replacement cost vs actual cash value canada

    Say your basement floods, rendering your downstairs television and sound system inoperable. Should the insurance company pay you out for the resale cost of the actual items you lost? Or, for the cost to replace that technology with a new, similar product?

    The above are the two main ways to calculate your payout. They are known as replacement cost and actual cost value, and they can result in not only very different payouts, but varying premium costs as well. Obviously there’s quite a difference between these two price tags, so it’s something that you should consider before you sign up for your homeowner’s or tenant’s insurance policy. Read on to learn more about these two calculations.

    Get a quote in less than a minute

    Get no-nonsense coverage that's the best value for your money. Purchase policies from your computer or phone, receive your documents instantly, and save when you buy online.

    Get a free quote

    4.7 rating

    Google Logo

    Actual Cash Value vs Replacement Cost

    To help simplify these tenant insurance terms, we’ll be going over their definitions, what the pros and cons are between them, and then concluding with some important differences.

    Definition of Actual Cash Value (ACV)

    With an actual cash value coverage calculation, your payout would be the dollar amount of what your items would have been worth today, had you sold them on the market before they were damaged. This means that this calculation takes into account things like deductions for depreciation, wear and tear, and the actual condition of the item when it is lost or stolen.

    For instance, if you bought a brand new pair of jeans five years ago, the calculation would consider the wear and tear that those pants had seen since you’d purchased them. As a result, you’d receive less than what you paid for the jeans due to depreciation.

    While the above is an example of a product that can depreciate quite quickly, many household items also lose their value over time. This means you’d likely have to make up the difference of the cost to replace your items should you have to cash in on your policy.

    Pros and cons of actual cash value

    Pros: Premiums for this policy are generally quite cheap, keeping costs down for policyholders.

    Cons: Payouts are lower, so clients will often have to pay out-of-pocket to replace their items on top of whatever their return is.

    Definition of Replacement Cost

    Replacement cost coverage pays you out the amount that you would have to pay on a new, similar, and comparable product. The idea behind this coverage is that you wouldn’t have to pay out of your own pocket to replace your items, as you’d get enough to cover a brand new replacement.

    However, this doesn’t mean that if you got a new computer five years ago and it was damaged today, you’d get a top-of-the-line replacement. In reality, you’d get paid out as much as a new computer with the same features as your old one would cost.

    Pros and cons of replacement cost

    Pros: Replacement cost insurance pays out quite high, meaning policyholders don’t have to dip into their own funds to ensure their lives can return to what it was before they had to file a claim.

    Cons: Premiums can be costly for policies with this type of covered losses.

    Difference Between Actual Cash Value and Replacement Cost

    Both calculation methods of replacement cost and actual cash value have their own pros and cons, so there’s not one that’s better than the other. This means it’s really up to the policyholder to decide which calculation method is right for them.

    Generally, getting a policy that will cover the actual cash value of items that are lost or damaged is great if you are looking for a policy that will offer you some protection while only charging you low premiums.

    However, if you’re looking to get plenty of protection for lost or damaged items and aren’t worried about paying higher premiums, getting a policy that covers the replacement cost of your items is the way to go.

    APOLLO offers effortless tenant insurance designed to protect renters across Canada. Get your free quote in less than a minute and we’ll send your policy documents right to your inbox.

    Get a quote in less than a minute

    Get no-nonsense coverage that's the best value for your money. Purchase policies from your computer or phone, receive your documents instantly, and save when you buy online.

    Originally published November 9, 2022, updated September 16, 2024

    Back to APOLLO Magazine
    Share this article

    Get a quote in less than a minute

    Get no-nonsense coverage that's the best value for your money. Purchase policies from your computer or phone, receive your documents instantly, and save when you buy online.

    Get a quote in less than a minute

    Get no-nonsense coverage that's the best value for your money. Purchase policies from your computer or phone, receive your documents instantly, and save when you buy online.

    Relevant articles

    section background
    section background

    Getting insured is as easy as 1 - 2 - 3

    Tell us (very little) about yourself
    1

    Tell us (very little) about yourself

    Just tell us your address, your name, email and phone number. And that's it. We'll give you a price in less than a minute.

    Pay online easily and securely
    2

    Pay online easily and securely

    You can choose to pay monthly or save money by paying for the entire year in one easy payment.

    Get your documents in your inbox - instantly
    3

    Get your documents in your inbox - instantly

    As soon as you complete your purchase, you'll find your proof of insurance and policy documents waiting for you in your inbox.

    Get covered today - it couldn’t be easier

    We’ve provided more than 1,000,000 quotes to Canadians just like you. Give it a try!

    Google Logo

    Reviews

    4.7 rating

    2,102 reviews

    view all

    Across Canada

    Contact Us
    Apollo logo

    © 2024 APOLLO Insurance Solutions Ltd.

    111 Water Street, Unit 210, Vancouver, British Columbia, V6B 1A7

    APOLLO Insurance Agency Ltd. (o/a APOLLO Brokerage in the province of Ontario only) is a licensed retail brokerage, offering our clients with a comprehensive set of insurance solutions to meet their individual needs. APOLLO Insurance Agency Ltd. maintains necessary corporate licensing in provinces across Canada. Availability of products and service depends on licensing and product availability. The information that appears on this page is provided for information purposes only. Advertised products and prices are not guaranteed and vary based on insurance provider and/or insurance company's discretion and product availability.

    Transparency and Disclosure: APOLLO Insurance Agency's role is to provide you with exceptional service and the best insurance products that suit your needs. As a licensed retail brokerage, our compensation is based on a commission basis already built into your insurance premium and varies based on the product purchased through our platform. For a description of how APOLLO Insurance Agency is compensated and how this is calculated, please refer to our Compensation Disclosure document. For consumers in Ontario, please review the RIBO Conduct Fact Sheet and the RIBO Conduct Guidance document.