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Actual Cash Value vs. Replacement Cost for your Commercial Property Insurance

What is Commercial Property Insurance?  

Commercial Property Insurance is a special type of insurance that covers the company building as well as the contents owned by the company. “Property” can include a variety of types: lost income or business interruption, buildings, computers, money, and valuable papers. 

Choosing the right amount of coverage can be difficult. There are two methods on how you can insure your property and help you to choose the right amount of coverage. The Actual Cash Value and Replacement Cost are the two calculation methods used to determine how much your policy covers your property from damage or loss. 

What is the distinction between Actual Cash Value and Replacement Cost for your Insurance Policy?  

The Actual Cash Value only pays for depreciated value of the property, while the replacement cost pays for the full replacement cost of your items.   

Actual Cash Value (ACV):  this policy is based on the property’s market value minus depreciation. Let’s say if your three years old computer is damaged in a fire or stolen, your insurer would determine the current value of that computer in its used condition and provide you with that value as payment.   

Replacement Cost: in contrast to ACV, this is based on the cost to repair or replace damaged items or property with new materials of quality and like-kind without depreciation deduction. For example, if your four years old office desk is damaged in a fire, your insurer would provide you the full replacement cost to purchase a brand-new office desk of equal quality, regardless of any potential depreciation.   

It is important to note that every insurance policy is different. Specific coverage varies from policy to policy. Make sure when you set up an insurance policy, to tailor it to your business. Work closely with your insurance advisor to understand the limits, deductibles and to determine the appropriate value of your business property and items.   

Having commercial property insurance is essential to your business, your investment, and your employees to avoid damaged property, costly losses, and business interruption. To learn more about the right coverage for your business contact Klinger Insurance Group today! You can reach us at 301-428-4935 or email us at