Differences Between Replacement Cost and Actual Cash Value Explained
There are several different methods by which your insurance company may calculate the amount it will pay you for a loss. This is covered under your insurance policy, such as your
auto insurance, and will be determined before you purchase your coverage. Generally, there are two options, actual cash value or replacement cost value. Here's what you need to know to help you determine the right option for your needs.
What is Replacement Cost Value?
Simply stated, it means the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose. This applies unless the limit of insurance or the cost actually spent to repair or replace the damaged property is less. Your policy will detail the exact definition.
What is Actual Cash Value?
This is the cost to replace the new property of like kind and quality, minus depreciation. You will not be able to go into a store and buy a similar new item to replace your lost or damaged item. Instead, the insurance company will reimburse you for the value of your item on a depreciated basis.
What's the difference?
The only difference between replacement cost and actual cash value is a deduction for depreciation. However, both are based on the cost today to replace the damaged property with new property.
Very often when a person is disappointed in how much they get paid, it is because they did not understand how the basis of claims settlement worked and the real meaning of Actual Cash and Replacement Cost. Ensure you know the ins and outs of your policy before you secure your coverage!
For all of your
insurance needs, talk to the professionals at Little & Sons Insurance Services, serving Banning and neighboring cities in California.
