Replacement value

Replacement value is a method for determining what an insurance company will pay you in case your property is stolen or destroyed. It equals the cost of replacing the property.

Actual cash value is another method for valuing property for insurance purposes. It equals replacement value minus depreciation. Since the actual cash value method results in your insurance company paying less for damaged property, it charges less for this protection.

Commercial property insurance that’s based on replacement value generates larger claim settlements, so insurers charge more for it.

Replacement cost coverage usually costs more than actual cash value coverage because it pays to replace items with new equivalents, without subtracting depreciation.

For many small businesses, this added cost can be worth it, especially if your business relies on equipment, tools, or technology to operate. Replacement cost coverage can help you get back up and running faster after a loss, without having to dip into savings to replace essential property.

Businesses that commonly benefit from replacement cost coverage include:

• Contractors and landscapers with tools and equipment
• Retailers with inventory and fixtures
• Offices dependent on computers and specialized electronics

Choosing the right valuation method can make a major difference when filing a claim. While actual cash value coverage may lower premiums, replacement cost coverage can help small businesses recover faster by reducing unexpected out-of-pocket expenses after a loss.

An insurance agent can help you decide which option best fits your budget, risk tolerance, and operational needs.

When you file a claim under a replacement cost policy, your insurer may not pay the full replacement value right away.

In many cases, the insurer first pays the actual cash value of the damaged or stolen property—meaning the value after depreciation. Once you replace the item and submit proof of purchase, the insurer then reimburses the remaining amount. This difference is known as recoverable depreciation.

Why this matters for small businesses? You may need to cover replacement costs upfront before receiving full reimbursement, which can affect cash flow after a loss.

For basic items, checking current prices online can be a good starting point. For higher-value or complex property—such as commercial buildings, specialized equipment, or bundled assets—working with an insurance agent can help ensure your replacement value reflects:

• Materials and labor
• Shipping or freight costs
• Installation and setup
• Local construction or market conditions

You can then use this estimated replacement value to:

• Select appropriate policy limits when buying property insurance
• Assign the right property value when submitting a proof of loss

Replacement value is based on current market prices, not what you paid in the past. Inflation, supply chain disruptions, and increased labor costs can all raise replacement costs over time.

To avoid being underinsured, small business owners should review their coverage limits periodically—especially if they’ve purchased new equipment, expanded operations, or noticed rising prices in their industry.

Insureon helps small business owners compare commercial insurance quotes with one easy online application. Start an application today to protect your business against theft, property damage, and other common risks.