At our agency, we often get asked "what is the difference between actual cash value and replacement cost?" Here's our answer:
Replacement cost means that whatever is damaged by a covered peril (think: fire and lightning, windstorm and hail, etc.) will be put back to the way that it was at the time of the loss with no depreciation. Actual cash value (ACV) means that the insurance company will depreciate the value of whatever was damaged by a covered peril. That means, they take the age and condition of the home into consideration when paying the claim.