Question: What is Actual Cash Value vs. Replacement Cost?

Actual Cash Value is a method of valuation that recognizes the reduction of value of property as it gets older and becomes subject to wear and tear. Actual Cash Value is calculated by taking the current replacement cost and subtracting depreciation.

Replacement cost is the cost to replace damaged property with like kind and quality at today’s price, without any deduction for depreciation. Following a loss, it may provide the insured a settlement in excess of the property’s actual cash value.

Here is a quick claim scenario: You have a fire in your home and you made a claim to your insurance company and your deductible has been paid. You are now replacing your damaged furnishings, including the $1000 sofa your purchased 5 years ago. If you have actual cash value, the company might give you $500 because that is the actual cost of that particular sofa today. If you have replacement cost coverage, the company will pay $1,200 because that is what it would cost to buy a similar sofa today.

What kind of coverage do you have on your South Carolina Home Insurance?