On a contractors equipment floater, the valuation clause decides what the client actually gets paid. Many carriers will offer replacement cost only on newer equipment, often equipment five years old or newer, and value anything older at actual cash value.
Contractors are often surprised by this after a theft or a total loss on an older machine. The settlement is based on what that machine was worth after depreciation, not what a new one costs today. Explaining it before a loss is far easier than explaining it after.
Replacement cost vs actual cash value, in one line each
- Replacement cost: the cost to replace with new equipment of like kind and quality, without deducting for depreciation.
- Actual cash value: usually replacement cost minus depreciation, which for older equipment can be a fraction of the cost of new.