What is the difference between replacement cost and actual cash value?by Kevin Gullbrants on 05/05/16
Replacement cost is a method for valuing the reimbursement of property on an insurance policy.
The most important concept to understand in regards to replacement cost is “new for old, like kind and quality.” The insurance company is going to give you the amount of money (up to your policy limit) that it takes for the materials and labor to replace your home. In most cases, this is the preferred property valuation method.
Actual Cash Value is a method for valuing property after an insurance loss.
What many people do not realize about actual cash value is that depreciation is taken out of the payment from the insurance company. If you have a kitchen fire and the cabinets in your kitchen are twenty years old. The company is going to pay you for twenty year cabinets. Not what it will cost to replace those cabinets today.
Most property owners prefer to insure their property at replacement cost instead of actual cash value.