What is the difference between “actual cash value” and “replacement cost” protection?
“Actual cash value” is the amount your property is worth at the time of the loss. It is, essentially, the cost to replace the item minus depreciation, which takes into account the loss of value due to age and normal wear and tear. The actual cash value on a piece of property, whether it is your home, stereo or favorite chair, may be much less than the cost to replace it new. When insurance companies settle on this basis, you may receive a check for an amount much less than you need to replace the item. “Replacement Cost” is the amount to replace your house, other buildings, and personal property without any deductions for depreciation. Your agent can help you calculate what your Replacement Cost should be.
