Do I want replacement value or actual cash value?

When you buy home insurance, you’ll likely have a choice between “replacement cost” and “actual cash value” coverage. Replacement cost is more expensive because it pays more in the event of a claim. It will reimburse you for new items that are like the ones that were destroyed. Actual cash value coverage pays only the depreciated value of your belongings. So if you had a 10-year-old sofa, you’re reimbursed for a 10-year-old sofa, not a nice new sofa.

The option to choose actual cash value coverage may be only for “contents,” meaning your belongings. Many policies automatically include replacement cost coverage for the dwelling, meaning the house itself.