One of the most common questions we get from our insurance clients is, “What is the difference between replacement cost value and actual cash value on my policy?” While each definition may seem fairly straightforward, each value contains complexities that can impact policyholders in the event of a catastrophic or partial loss.
What is actual cash value?
In the insurance world, actual cash value is defined as the cost to replace a property with like kind and quality materials, less depreciation. For example, if you have a 30-year-old roof, and it’s been up for 15 years, you have depreciated 50% of its life. In an insurance situation, you would only get 50% of that value back in the event the structure was damaged or destroyed
(minus the deductible, of course). Actual cash value is something you want to avoid if at all possible. In some cases, it is not possible to avoid based on a variety of factors including the age of the building, construction, and occupancy.
What is replacement cost?
As an agency, what we are most concerned with on a property policy is replacement cost value. Replacement cost is what you would pay to replace a building or asset based on current (re)building costs. In the event you suffer damaged property, a policy providing replacement cost would reimburse you for the cost of replacing the property without the insurer penalizing you for depreciation up to the limit of insurance.
If you are unsure of your coverage under your existing commercial policy, check with your agent for clarification. Our team at Catto & Catto specializes in delivering specialized solutions to complex problems in an effort to manage business risks through a tailored property solution that protects your business assets. Contact us to learn more.
About the Author
Martin Williams
Partner & Director - Commercial Lines