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.