The post starts off by discussing how replacement cost is used, "Clients often ask after reviewing their insurance policy why the limits on their home insurance are higher than what they paid for their home. The reason for this is because market value is not the important variable when figuring out the cost of repairing your home after a loss, the replacement value is."
The story goes on to talk about the difference between replacement cost and actual cash value, "The replacement cost is the amount that someone would have to pay to replace an item at retail...Actual cash value is also known as the “pawn shop value” which means that if something is insured using actual cost value you would only get the amount of money for it that you would get if you sold it as is."
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