What is the difference between “actual cash value” and “replacement cost”?

Covered losses under a homeowner’s policy can be paid on either an actual cash value basis or on a replacement cost basis. When “actual cash value” is used, the policy owner is entitled to the depreciated value of the damaged property- so the older the item is, the less money you may receive for it. Under the “replacement cost” coverage, the policy owner is reimbursed the amount it costs to replace the property with something of a similar type and quality at current prices.