What’s the difference between Replacement Cost and Actual Cash Value?
Replacement Cost is the cost of replacing something with a comparable new item or of repairing it (if it’s the less expensive option) without an amount taken away for depreciation. If repairs are being done, only new materials of the same kind and quality will be used.
Actual Cash Value is the actual value of something on the day the claim is made, not the value of it when it was new. This is calculated by taking the replacement cost then taking away an amount for depreciation, which is usually figured out by the condition of an item, its resale value, and its normal life expectancy.
Here’s an example: Let’s say you bought a brand new TV for $1,500 in 2012 and it gets stolen one year later. Calculations show that the TV was worth $1,000 when it was stolen. With Replacement Cost on your policy, you would get a new TV that’s identical or equivalent to the original. Without Replacement Cost, you would get $1,000 cash.