WebCE Insurance Practice Exam

In property insurance, the amount you receive depends on whether your policy pays Actual Cash Value or Replacement Cost. Actual Cash Value means you’re getting the value of the item as of the loss, after accounting for depreciation. So depreciation reduces the payout to reflect wear, age, or obsolescence. Replacement Cost coverage, on the other hand, aims to restore you by paying enough to replace the damaged item with a new one of like kind and quality at current prices, rather than the depreciated amount. This is typically limited by the policy’s limits and can involve appraisals to determine the current replacement cost. So, the correct idea is that Actual Cash Value pays the depreciated value, while Replacement Cost pays to replace with new property, up to what the policy allows and, at times, as determined through appraisals.