The difference in one sentence
Replacement value is what it costs to buy the item new today. Actual cash value is what the item is really worth given its age and wear. The first ignores depreciation, the second subtracts it.
Replacement value
Replacement value is the current price of an equivalent new item. If your television bought for $1,200 five years ago can be replaced today with a comparable model at $900, its replacement value is $900, regardless of its current condition. A policy that covers replacement value aims to put you back where you were before the loss, without penalizing the age of your belongings.
Actual cash value
Actual cash value starts from the replacement value and subtracts depreciation. That same television, halfway through its useful life, may have an actual cash value of only $450. A policy on an actual cash value basis reimburses that amount, not the cost of new. The difference comes out of your pocket.
A worked example
| Television (5 years) | |
|---|---|
| Price paid at purchase | $1,200 |
| Replacement value today | $900 |
| Depreciation applied | 50% |
| Actual cash value | $450 |
| Paid if replacement value policy | $900 |
| Paid if actual cash value policy | $450 |
On a single device, the gap is $450. Multiplied across everything in a home, it runs into thousands of dollars.
How to know which one applies to you
The answer is in your contract. Look for wording like "replacement cost" on one side and "actual cash value" or "depreciated value" on the other. Some policies cover the building at replacement value but the contents at actual cash value. When in doubt, your insurer is the reliable source.
Why document both
When you file a claim, you often have to justify the value you are claiming. An inventory that records both the replacement value and the actual cash value of each item prepares you, whatever the basis of your policy. MapleSafe estimates both values for every item, for reference, from real market data. That estimate helps you prepare your file, without replacing your insurer's official valuation.