On all policies that cover your property there is going to be a section titled “Valuation” which tells you how the insurance company is going to determine the value of the property being insured.
There are two main forms of Valuation that insurance companies use. (there are more, but these are the most common)
Replacement Cost (RC) and Actual Cash Value (ACV)
A generic definition of Replacement Cost is that the property will be replaced with “like kind and quality”.
Actual Cash Value takes into account depreciation. Again, a generic definition is Replacement Cost - Depreciation = Actual Cash Value
It is important to know how your property is insured. It is also important to know that these valuations don’t just apply to buildings. Vehicles, Equipment, Tools, Electronics, etc are all subject to a specified Valuation.
Replacement Cost is obviously going to be better in terms of getting a better Valuation, but it is also more expensive.
Something to think about when you review your policy.
How is your property insured? Is the valuation the right one for your property?
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