Your insurance company can calculate the amount it will pay you for a loss in various ways. However, the two most common methods are replacement cost and actual cash value. Each method is different, and it’s important to understand the difference between the two when purchasing a property insurance policy.

What is the replacement cost?

Replacement cost provides the most favorable payment terms between the two. Simply put, it means the cost of replacing the property on the same premises with another property of comparable material and quality used for the same purpose. This applies unless the insurance limit or the cost spent to repair or replace the damaged property is less.

For example, if you have computers stolen from your school, it will reimburse you the total cost of replacing them with new computers of like kind and quality.

What is the actual cash value?

Actual cash value, or market value, equals the replacement cost minus any depreciation.   It is supposed to represent the dollar amount you could expect to receive for the item if you sold it in the marketplace. The insurance company determines the depreciation based on objective criteria (using a formula that considers the property’s category and age) and subjective assessment (the insurance adjuster’s visual observations of the property or a photograph).

We recommend purchasing your insurance policies with replacement cost instead of actual cash value whenever possible. Please get in touch with our office if you have any additional questions on how replacement cost and actual cash value affect your charter school’s insurance policies.