The Difference between Replacement Cost and Actual Cash Value

Florida public adjusters want every homeowner to be aware of the residential insurance claim process, as there are many aspects and terms that are not easily defined by homeowners. One of those aspects is Actual Cash Value vs. Replacement Cost Value. In order to make these two concepts simple to understand, the expert public adjusters at Advocate Claims have outlined everything that you need to know about the two terms and how to be knowledgeable about what exactly your homeowner’s or property insurance covers.

Actual Cash Value – When filing an insurance claim, depending on if you purchased actual cash value or replacement cost coverage will determine how your insurance claim will be paid.  Actual cash value is traditionally determined based on taking the replacement cost less depreciation. It is important to keep in mind that actual cash value is not as easily defined as replacement cost. Some courts have interpreted actual cash value to mean “fair market value”, which is the amount that a buyer would pay if a seller was simply selling a used item.

How is depreciation computed? Depreciation is typically calculated using the following formula:

Asset’s Historical Cost – Asset’s Estimated Salvage Value / Asset’s Useful Life

Replacement Cost – Replacement cost is more easily defined an understood as the cost to replace the property with new property of comparable material and quality.

The difference between replacement cost and actual cost value is the aspect of depreciation factored in.

Licensed Miramar public adjusters want you to always be knowledgeable about exactly which kind of coverage you have, whether it be actual cash value or replacement cost. If you need guidance or assistance reviewing your homeowner’s or commercial property insurance coverage, contact Steven Venook at Advocate Claims at 954-978-0886.

Steven Venook has been serving homeowners and commercial business owners for over a decade, making sure that they get the best possible return when filing a property damage insurance claim. Advocate Claims is a member of the Better Business Bureau and can give you guidance and insight when reviewing your insurance policy.