Two property policies can insure the same roof for the same amount and pay very different sums after the same storm. The valuation basis in the policy, not the limit, determines what arrives.
Actual cash value subtracts depreciation
Under an actual cash value settlement, the insurer establishes what it would cost to replace the damaged property and then deducts for age, wear and remaining useful life.
The logic is indemnity: the policyholder is restored to their position immediately before the loss, and that position included a partly worn item rather than a new one.
On property with a long expected life, such as roofing or flooring, the deduction grows steadily every year and can eventually exceed what remains payable.
Replacement cost ignores age at settlement
A replacement cost policy pays what it takes to restore the property with materials of like kind and quality, without reducing the figure for depreciation.
The policyholder ends up better off than immediately before the loss in accounting terms, since an old component has been replaced with a new one.
Insurers accept that because partial betterment is unavoidable in practice and because policies without it leave claimants unable to actually complete repairs.
Replacement cost is usually paid in two stages
Most policies pay the actual cash value first and release the withheld depreciation only once the repair or replacement has been completed and documented.
This is called recoverable depreciation, and it exists to prevent a claimant from taking a full new-for-old payment and never carrying out the work.
It also means the policyholder must fund the gap temporarily or arrange for a contractor willing to work against the second payment, which is a real cash flow issue.
Coinsurance ties the settlement to the amount insured
Replacement cost policies typically require the property to be insured to a stated proportion of its full replacement value.
If the limit falls below that proportion, the insurer applies a penalty that reduces even a partial claim in proportion to the underinsurance.
Construction costs move over time, so a limit that was adequate at inception can quietly fall below the requirement without the policyholder changing anything.
Some property is settled on cash value regardless
Policies frequently carve out specific categories, applying actual cash value to roofs above a certain age, to fences, or to particular contents even on a replacement cost policy.
These endorsements have become more common where weather losses have been heavy, and they can change the effective coverage substantially without changing the headline limit.
Reading which valuation basis applies to which category is therefore more informative than comparing the amount of cover between two quotes.