You purchase property insurance to cover losses you may have to your commercial buildings, movie and production equipment, props and property. There are a number of decisions you make regarding your coverage that will determine how the loss will be viewed by the insurance company. One of the most important aspects of your entertainment insurance policy is how your property is valued; there is replacement cost coverage (RC), and there is actual cash value basis (ACV).
What Is Replacement Cost Coverage?
Replacement cost coverage essentially means that the insurance company will replace the damaged or destroyed property with new property up to the policy limit, as long as it is with like kind and quality. This may seem simple, but it's not quite that simple in every case. If the value is not accurate, your loss may not be fully covered.
This insurance pays the full amount needed to replace the asset or property up to the policy limit. Any gradual reduction of the asset value or depreciation is not taken into account for insurance claim purposes. This can be very important in the entertainment industry with all the high valued equipment.
Replacement cost works for most types of property, however, it's not perfect for everything. A copy of a Picasso is not a Picasso, so fine art is not always covered under a replacement cost policy. It also doesn't work for one of a kind machinery or tools and dies. For those types of items you probably need to have a scheduled policy that actually agrees upfront what the value of those items should be.
What is Actual Cash Value?
ACV is replacement cost less depreciation. For example, if you have a 6 year old expensive camera that will cost $55,000 to replace, ACV would value the camera at $55,000 minus 6 years of depreciation or as low as $7,000. The depreciation is usually calculated by establishing a useful life of the item determining what percentage of that life remains. This percentage multiplied by the replacement cost equals the ACV.
We almost always recommend RC for all customers.