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Understand the Difference Between Actual Cash Value and Replacement Cost

Helpful Advice from Your Louisiana Business Insurance Broker

The world of insurance may be confusing and the definitions can leave you scratching your head. How do you choose between deductibles? Will the policy you are considering replace lost items or only pay a part of the article? What is an indemnity, assurance, or security? Do you need an additional insured? The list could go on and on.

Understanding some key terms will help you if and when a claim occurs. Your professional business insurance brokerfrom The Nowell Agency is available to answer your questions and help you navigate the various terms and conditions you will face. Let us work with you to get the best coverage for your needs.

Actual Cash Value vs. Replacement Cost

Calculating the amount your insurance company will pay for a loss is done with a variety of different methods. A couple of waysinclude actual cash value and replacement cost. Here is a breakdown:

  • Actual Cash Value – In general, it refers to the fair market value of an item at the time of loss, or the amount a buyer would pay to a seller for the item under different circumstances. It includes the replacement value and then subtracts for depreciation. 
  • Replacement Cost – The term “replacement cost” refers to the cost you would pay to replace the insured item with another that is madewith similar material and quality as the original. Generally, this applies as long as the insurance limit or cost spent to repair or replace the lost or damaged item is less.
  • Special Valuation – Some property will not fall into either category. Instead, the value reported to your insurance agent should match the applicable method. For example,the valuation may be basedon the sellingprice.

One item to keep in mind is that the “book” value or accounting value will not apply in the case of actual cash or replacement cost. Using an accounting method will not result in as accurate calculations because of capitalizing or expensing an item.

Get Help with Your Business Insurance Needs

Gain more knowledge so you can make better business insurance decisions by working with a reputable insurance agency in Louisiana. When you talk with a Nowell Agencybroker, you get a partner in protecting your assets and increasing your chance of success. Our professionals are experienced in a variety of industries, and they can help you obtain the policies you require to ensure your business can handle those incidents and losses that occasionally occur. Contact us for all your insurance coverage needs including general liability, contractor, manufacturing, or workmen’s compensation policies.

Request an insurance quote online or call one of our offices near youto schedule a meeting with a knowledgeable and experienced broker at The Nowell Agency.


The Nowell Agency is committed to providing you with fast and efficient service. If you would like a quote on any of our products please complete the short form below and click submit.

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    The Nowell Agency has been my primary agent for many years and they are attentive, well-staffed, and easy to talk to. Their agency has helped me through state to state moves and career change and kept my assets covered.

    James G.

    My very first insurance experience was when I bought my first house and I called the Nowell agency for a quote. I had no idea what I needed or how much and they were so very kind and knowledgeable and explained everything to me in detail which I so much appreciated. That has been 4 years ago and im still a customer never plan to leave.

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    I have been very pleased with the quick and professional service by the Nowell agency. My agent was very efficient at locating a policy that met my needs and budget. Thank you to Kristy and the Nowell agency for providing me with fantastic customer service. I highly recommend this agency. You will not be disappointed.

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