What is the difference between “actual cash value” and “replacement cost”?
Covered losses on a homeowners policy can be paid on either an actual cash value basis or on a replacement cost basis. When actual cash value is used the insured is entitled to the depreciated value of the damaged property. Under the replacement cost coverage, the insured is reimbursed an amount necessary to replace the article with one of similar type and quality at current prices up to the policy limit.
Covered losses under a personal possessions or household contents policy can be paid on either an actual cash value basis or on a replacement cost basis. When “actual cash value” is used, the policy owner is entitled to the depreciated value of the damaged property. Under the “replacement cost” coverage, the policy owner is reimbursed an amount necessary to replace the article with one of similar type and quality at current prices.
Covered losses under a homeowners policy can be paid on either an actual cash value basis or on a replacement cost basis. When “actual cash value” is used, the policyowner is entitled to the depreciated value of the damaged property – so the older the item is, the less money you may receive for it. Under the “replacement cost” coverage, the policyowner is reimbursed the amount it costs to replace the property with something of a similar type and quality at current prices.
Replacement Cost is the amount to repair or replace the damaged property using materials of the like kind and quality, without deduction for depreciation. Depreciation is the loss of value that develops as an item ages, wears out, or becomes obsolete. Actual Cash Value is the replacement cost of an item, less the amount for depreciation.
