What is the difference between “actual cash value” and “replacement costs”?
Covered losses under a homeowner’s 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. The replacement price will not be given to an insured who suffers a covered loss until he/she actually replaces the item.
