Ho w it Works Homeowners insurance policies offer actual cash value or replacement cost coverage to replace your damaged, stolen, or destroyed personal property. • Replacement cost is what you would pay for the item at today’s cost. • Actual cash value is what you would pay for a similar item at today’s cost minus depreciation (replacement cost minus depreciation). • Depreciation is a decrease in value due to wear and tear or age. Claim Scenario Your home and some furnishings were damaged during a recent wildfire. You made a claim to your insurance company and have met your deductible. Now you are looking at replacing the damaged furnishings. Last year, you bought a sofa for your living room for $2,000. The amount of money you will receive to replace your sofa depends on the type of coverage you have. • If you have actual cash value coverage, the company might pay you $1,500 because that is the actual cash value of the sofa today (replacement cost mi