Replacement cost covers the cost to rebuild or replace an item at today’s prices, without deducting for depreciation. For example, if a TV bought in 2015 for $500 now costs $800, replacement cost coverage would pay $800 – enough to buy a new one.
Actual cash value, on the other hand, factors in depreciation. Using the same example, you might receive only $200–$300 based on the item’s age and wear.
Choosing replacement cost ensures you can repair or replace damaged property at current market value rather than receiving a reduced payout for used items.