Residential Property Claims Guide
8 Replacement Cost Versus Actual Cash Value Replacement cost is the dollar amount needed to replace a damaged item with one of similar kind and quality without deducting for depreciation – the decrease in value due to age, wear and tear, and other factors. An actual cash value policy pays the amount needed to replace the item at the current market value. For example, a tree falls through the roof onto your eight-year old washing machine. If you have a replacement cost policy for the contents of your home, the insurance company would pay to replace the old machine with a new one. If you have an actual cash value policy, the company would likely pay only a percentage of the cost of a new washing machine because a machine that has been in use for eight years would almost certainly be worth less than its original cost according to the current market value.
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