Replacement cost or actual cash value: Which is right for me? One crucial consideration when crafting a commercial policy is whether to insure our company’s assets for Replacement Cost (RC) or Actual Cash Value (ACV).
While these seem like two ways to address the same issue, there are distinct differences. Opting for Replacement Cost means that if a mishap occurs in our business, the insurer covers the funds needed to replace or rebuild the damaged value. For instance, if the dry cleaner’s washing machines malfunction, the insurer would provide the necessary funds to replace them.
On the other hand, with ACV, the insurer only pays out the value of the damaged asset, factoring in its depreciation over time and use. This means the insurer would pay a sum akin to what the washing machines would fetch on the second-hand market.
Undoubtedly, premiums for an ACV policy would be cheaper. Still, the compensation provided by the insurer after an incident might not be enough to get a business back on its feet after significant losses.
Before signing a policy, discussing every aspect of the contract with a commercial insurance specialist is vital. They’ll guide you on which coverage is most suitable based on your company’s type and stage of development. Replacement cost or actual cash value: Which is right for me?
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