Replacement Cost vs Actual Cash Value: Commercial Property?
Replacement cost generally pays based on repairing or replacing with comparable new property; actual cash value usually subtracts depreciation or follows the policy’s definition.
The valuation method can materially change your claim payment. Texas Department of Insurance describes replacement cost as current repair or replacement cost and actual cash value as replacement cost minus depreciation. California’s guide cautions that ACV depends on the policy definition and may mean fair market value in California unless defined otherwise. Neither method removes the policy limit, deductible, coinsurance, or claim conditions.
Compare valuation separately for the building, equipment, and stock. Read how ACV is defined, whether replacement-cost payment is initially depreciated and later reimbursed after repairs, and whether coinsurance applies. Verify that limits reflect current replacement costs rather than book value or purchase price.
