There are several different methods by which your insurance company may calculate the amount it will pay you for a loss. The most common are replacement cost and actual cash value. When deciding between replacement cost or actual cash value it is important to understand each type of coverage.
Replacement cost is the amount it would take to replace or rebuild your home or repair damages with material of similar kind and quality, without deducting for depreciation. For example you have a computer stolen form your house
Example of Replacement cost: If your computer is stolen, a replacement cost policy will reimburse you the full cost of replacing it with a new computer of like kind.The insurer will not take into consideration the fact that it was 7 yrs old, and ran really slow.
Actual cost values (ACV) is the amount it would take to repair or replace damage to your home after depreciation. ACV= Replacement Cost – Depreciation
Example of ACV: In the case of the stolen computer, the insurance company would deduct from its replacement cost an amount for the 7 yrs of use it endured prior to the time it was stolen.
Ushally a Replacement cost policy is a little more money but if you ever have a claim it is the type you want.