Whats the difference between “replacement cost” and “actual cash value”?
Replacement Cost – The cost of replacing an item without deducting for depreciation. Today’s cost for a TV with features similar to the seven-year-old one damaged by fire would determine the amount of compensation. If it still costs $500 today, that would be the amount of your coverage (subject to your policy’s deductible). Actual Cash Value – The replacement cost of the new item minus depreciation. For example, a new television may cost $500. If your seven-year-old TV gets damaged in a fire, the value of it might have depreciated 50 percent. Therefore, the amount of your coverage for the TV would be $250 (subject to your policy’s deductible). With most policies you can select which type of coverage you would prefer. Having replacement coverage typically adds only 10 to 15 percent to the cost of your premium and may be worth this slight increase.
