When building your Commercial Insurance policy, one of the most important distinctions you can make is between the Actual Cash Value and the Replacement Cost Value of your property. The terms reflect two ways to determine your property’s worth, and the differences between them could represent thousands of dollars in an insurance claim.

To help you ensure that your company’s assets are fully protected in the event of property damage, we’ve defined each value and the difference they can make on your Commercial Property Insurance policy:

Actual Cash Value, or ACV, determines the cost to repair or replace your damaged property, minus the estimated depreciation. Based on age and estimated wear-and-tear, ACV is typically a fraction of the item’s original value.

By contrast, Replacement Cost Value, or RCV, equals the full amount required to replace a damaged item.  It is defined by the insurance policy, and provides for the replacement of damaged property with items of comparable material and worth. RCV accounts for appreciation and for the evolution of quality standards over time.

Without Replacement Cost Insurance, policy holders must cover any additional expenses required to repair or replace damaged property. This could come at a great cost to the business, as county officials in Eastern Iowa discovered recently. At the end of March, a fire destroyed three of Iowa County’s snowplows. Among the vehicles lost was a 20-year-old machine, the modern-day equivalent of which is priced around $300,000. Uncertain of what their insurance policy would cover, county officials estimated damages totaling nearly $700,000 for the three vehicles alone; this amount did not include repairs to other snowplows or to the charred building where they were housed.

These definitions and warnings apply equally to personal property insurance. As with a Commercial Property Insurance policy, a homeowner will benefit most from a Replacement Cost Insurance policy in the event of a claim. This coverage protects the homeowner from significant financial losses due to out-of-pocket repair and replacement expenses. Yet most homeowners don’t realize that they’re not fully covered.

Don’t get caught without adequate coverage for your business or your home. To review your Commercial Property or Home Insurance policy, contact one of our three Northern Louisiana offices. We offer Business Insurance policies for companies all across the Southern United States, and we can help you determine if your assets will be protected when it matters most.

Do you have Replacement Cost Insurance for your home or business? Why or why not?