Replacement Cost vs Actual Cash Value

The two ways property claims are valued, with depreciation the difference between them.

Overview

Actual cash value pays the depreciated worth of a lost item, so a 15 year old roof might return a fraction of reroofing cost, while replacement cost pays to rebuild or repurchase at today prices. Replacement coverage costs noticeably more but prevents shortfalls after a loss, and on contents it matters as much as on dwellings. Some policies pay cash value first and the balance on proof of replacement within a set period, which strains cash flow after a disaster. Extended replacement cost adds a cushion of 25 to 100 percent above dwelling limits to absorb construction surges after catastrophes, when materials and labor bid up. Checking which valuation applies to roof, contents, and dwelling is among the highest value lines to verify at renewal.