What is the Difference Between Actual Cash Value and Replacement Cost?

Replacement cost is the amount is would cost to replace an item or items with an identical or equivalent item available today, without any deduction for depreciation.

Actual cash value is the amount it would cost to replace an item or items after deducting depreciation for the age and condition of the item or items at the time of loss or damage.

Based on the above, it is clear that a replacement cost policy is better than an actual cash value policy because no deduction for depreciation is made. However, a replacement cost policy is likely to have a higher premium because the insurance company will need to pay out more in the event of a claim.

September 4, 2010