There are many different insurance products available, allowing you to structure a home insurance policy that meets your specific needs. Home policies are designed to pay a claim on either an actual cash value or a replacement-cost basis. Actual cash value determines how much an item will cost to replace and deducts an amount for depreciation .
Replacement cost makes no deduction for depreciation.
In addition, an actual cash value settlement will generally be in cash and you can do whatever you choose with the money you receive. A replacement cost settlement usually requires you to replace the item being claimed. Guaranteed replacement cost provides full replacement even if you have inadvertently underinsured your property. An insurer will usually apply an automatic inflation adjustment to your policy in order to ensure that the home is insured to value. The Particulars You should choose the policy that most adequately insures your needs.