Replacement Cost vs. Actual Cash Value

Even if you obtain all the necessary insurance coverage to protect your business, do you know how your assets are insured? The most common valuations used are Replacement Cost and Actual Cash Value.

• Replacement Cost is simply the cost to replace lost or damaged property with similar property.

• Actual Cash Value is more complicated, as deductions are made for depreciation. Consider a computer insured as actual cash value which becomes damaged. The insurance company would take the replacement cost of the computer, and subtract the years of wear and tear the computer endured before it was damaged to determine the amount of reimbursement to the insured.