In insurance, the terms actual cash value and replacement cost are something you may hear while speaking with your agent. What do they mean, exactly, and which one applies to you and your situation?
Actual cash value is not as easily defined as one might think. Sometimes it means fair market value, which is the amount a buyer would pay a seller no matter the time. What many consider as its definition, though, is the cost to replace the property similar (or the same), less depreciation (which is the reduction of cost due to wear and tear).
Replacement cost is typically defined or explained in your policy. It means: the cost to replace the property similar or the same to what was lost unless the limit of insurance or cost spent to repair or replace the property is less than what it is worth.
So, whats the difference?
Depreciation! Actual cash value considers the deduction of depreciation of the property.
Be sure to talk this over with your Farmers Union agent, as they will always tell you what is best for you and your operation or family.