Which statement compares replacement cost and actual cash value (ACV) valuations in property claims?

Which statement compares replacement cost and actual cash value (ACV) valuations in property claims?

• A. Replacement cost reimburses the cost to replace with new property (subject to limits); ACV equals replacement cost minus depreciation.
• B. Replacement cost equals ACV; ACV equals replacement cost minus depreciation.
• C. ACV exceeds replacement cost when property is new.
• D. Replacement cost never considers depreciation.

Answer: (A)

Replacement cost and actual cash value differ mainly in how depreciation is treated. Replacement cost pays to replace damaged property with new property of like kind and quality, up to policy limits, without subtracting depreciation from the payout. Actual cash value is the replacement cost minus depreciation, reflecting the item’s age and wear. So the statement is correct because it cleanly states these two fundamental relationships and notes that replacement cost is limited by the policy. For example, replacing a damaged item today might cost $4,000; with replacement cost coverage you could receive up to $4,000 (subject to limits). The actual cash value would be $4,000 minus depreciation, say $1,000 for a 25% depreciation, totaling $3,000. The other ideas misstate the relationship: ACV does not exceed replacement cost when the item is new; depreciation means ACV is typically less than RC; and replacement cost coverage is not based on depreciated value, though depreciation affects ACV.

Replacement cost and actual cash value differ mainly in how depreciation is treated. Replacement cost pays to replace damaged property with new property of like kind and quality, up to policy limits, without subtracting depreciation from the payout. Actual cash value is the replacement cost minus depreciation, reflecting the item’s age and wear. So the statement is correct because it cleanly states these two fundamental relationships and notes that replacement cost is limited by the policy. For example, replacing a damaged item today might cost $4,000; with replacement cost coverage you could receive up to $4,000 (subject to limits). The actual cash value would be $4,000 minus depreciation, say $1,000 for a 25% depreciation, totaling $3,000. The other ideas misstate the relationship: ACV does not exceed replacement cost when the item is new; depreciation means ACV is typically less than RC; and replacement cost coverage is not based on depreciated value, though depreciation affects ACV.