Herbert M. Sheaner, Jr. 
Insurance Agency

Actual cash value is not defined by the policy. Based on a number of Texas court decisions, actual cash value is said to be synonymous with "fair market value" — the price a willing purchaser who is under no obligation to buy would pay to a willing owner who is under no obligation to sell. This price can be quantified in one of three ways: (1) comparable sales; (2) the income capitalization approach; or (3) the cost of repair or replacement less depreciation.

(Note: Depreciation is the decrease in home or property value since the time it was built or purchased because of age or wear and tear.)

Replacement cost is the amount it would take to replace or rebuild your home or repair damages with material of similar kind and quality, without deducting for depreciation.

The insurance company determines the depreciation based on a combination of objective criteria (using a formula that takes into account the category and age of the property) and subjective assessment (the insurance adjuster's visual observations of the property or a photograph of it).