Replacement cost and actual cash value are two terms consumers may encounter when reviewing property insurance.
Replacement cost generally refers to the cost of replacing damaged property with similar property, subject to the policy terms and limits, without a deduction for depreciation in the same way as actual cash value.
Actual cash value generally considers depreciation when determining the value of covered property. As a result, the amount paid under an actual-cash-value approach can be lower for older items.
The difference can matter after a major loss. An older appliance, for example, may cost much more to replace today than its depreciated value.
Policies can use different valuation methods for different categories of property. Consumers should therefore read the policy wording rather than assuming every item is treated identically.
Premiums can also differ depending on coverage and insurer. When comparing policies, ask how personal property, building components, and special categories are valued.
Keeping an inventory of possessions, including approximate purchase dates and receipts where available, can make documentation easier after a loss.
Coverage terms vary widely, so confirm the valuation method before purchasing or renewing a policy.