Replacement Cost (RC) vs. Actual Cash Value (ACV) for Commercial Property

Replacement Cost and Actual Cash Value are coverage options that refer to different ways your Property Insurance Policy will cover your building and/or the contents within the building in case they are damaged or lost in a covered risk. Your building and most of your belongings will decrease in value over overtime, so consider these elements when purchasing coverage to protect your business property!

Actual Cash Value is considered basic coverage on Commercial Property policies where your building and contents are replaced with items of like kind and value minus depreciation. In other words your property would be covered for what you might expect to get if you sold it at an online auction, garage sale, or other sales event. 

• For example, if your building was damaged in a covered peril, your property insurance policy would then pay the actual cash value of your building before the loss. This would work the same way for your building’s contents. If you had a 6 year old refrigerator that was worth $1,100 when you bought it, but only worth $300 at the time of the loss, then your policy would replace it with a refrigerator that is worth $300 at that time, or give you the $300 in actual cash. This coverage generally costs much less then the Replacement Cost Coverage option.

Replacement Cost Coverage is more common than Actual Cash Value. If your building and/or building contents are damaged or lost, then your policy will pay to replace your property or repair damages with materials of similar kind and quality without deducting for depreciation. This type of coverage is key for business owners who want their property replaced or repaired to its original state. 

• For example, if your 6 year old refrigerator was damaged and needed replacement, your policy would then provide you with a new fridge of equal quality with out depreciation.

Keep in mind that depending on the real estate market at the time of loss, Replacement Cost might be worth less then Actual Cash Value for your building. Although depreciation has occurred, sometimes the increase in property values can create a situation where actual cash value of your building may exceed the cost of replacing the building with similar kind and quality.

Professional Liability vs. General Liability

It is common knowledge that having proper insurance coverage is very important to help businesses avoid risks and financial devastation; what is not so obvious is deciding which policies are appropriate for your specific company. 

There are different types of Liability Insurance that can protect your business as well as the people with whom your business interacts. You may have heard the terms "General Liability" and "Professional Liability" but not know or understand exactly what they are.

“General Liability” typically covers claims of bodily injury and/or property damage. General Liability can be referenced as: 

1. Exposure as work performed physically with your hands or,
2. Performing an act on a physical object. 

For example, if a plumber is repairing a pipe inside of a home and fails to properly tighten the pipes together, resulting in a leak that causes damage to the home, then General Liability would typically cover the damages.

“Professional Liability” also covers bodily injury and property damage that is caused from a non-tangible occurrence. Businesses who carry professional liability coverage’s are paid to perform a certain non-tangible task. If the task if not performed correctly, then that business can be responsible for the damage done. 

For example, An engineer provides a set of blue prints to a home owner to build their pool. The blue prints provided contained errors and flaws affecting the integrity of the structure. If structural damages arise from the design of the blue prints, professional liability would most likely cover this exposure.