Actual cash value and replacement cost are two formulas that insurance companies use to calculate how much they will pay you to replace an item you file an insurance claim for.
Actual Cash Value pays damages equal to the replacement value of damaged property minus depreciation.
Replacement Cost pays the dollar amount needed to replace damaged personal property or dwelling property without deduction for depreciation but limited by the maximum dollar amount shown on the Declarations page of the policy.
The big difference between the two is the depreciation. Generally, replacement cost is the ideal coverage from the insureds position although this coverage can increase the price of an insurance policy. But if you ever need to file a claim, you’ll be glad you have it. If your 64” Flat Screen TV was stolen you would want the full reimbursement of replacing that TV. However, for Actual Cash Value, the fact that the TV has been used, the insurer would take into consideration the wear and tear that the TV has endured, thus, replacement cost minus depreciation.
The distinct differences between these two terms will directly influence your insurance settlement, so examine and choose wisely. You want to pick the appropriate coverage for your needs and comfort level. You will want to get that TV replaced as soon as possible so you can get back to watching those Bears Games.
