There are 2 main types of coverage available, they are Replacement Cost and Actual Cash Value.
Replacement cost coverage is the preferred kind of coverage. This covers the amount it would cost to replace damaged or lost property with a similar one at today’s current costs including the cost of debris removal. If you have replacement cost coverage on your 15-year-old building, your insurance will pay an amount that allows you to build a comparable new building with no deduction for depreciation up to the limit on your policy. In order to qualify for Replacement Cost coverage the building has to minimum standards. The building needs to be maintained very well.
Actual Cash Value refers to the actual or current value of property just prior to the time of a loss. There are 4 distinct methods used to determine the actual cash value. Each of these methods use some or all of the listed considerations. i.e.: depreciation due to age, general condition, upgrades, location, obsolescence and use, just to name a few. Therefore, the actual cash value of a 15-year-old building will be much less than the actual cash value of a similar new building.