The current market value of property at the time of a loss, calculated as replacement cost minus depreciation. If your five-year-old roof is damaged, an actual cash value policy pays what a five-year-old roof is worth today — not the cost of a brand-new roof.
Related Terms
Coverage Limit
The maximum amount an insurance company will pay for a covered loss under a policy. Limits can apply per occurrence, per person, or as an aggregate over the policy period. Choosing the right coverage limit is one of the most important decisions when buying insurance.
Depreciation
The decrease in the value of property over time due to age, wear and tear, or obsolescence. In insurance, depreciation determines the difference between replacement cost and actual cash value when settling a claim.
Replacement Cost
The amount it would cost to replace damaged or destroyed property with new items of similar kind and quality, without deducting for depreciation. Replacement cost coverage typically results in higher claim payments than actual cash value coverage.