Describe the difference between actual cash value and replacement value

What will be an ideal response?

Answer: Homeowner's insurance is set up to pay the policyholder the actual cash value of the loss. The actual cash value, which is the replacement cost minus estimated depreciation (wear-and-tear costs), can be well below the cost of replacing the asset. As an alternative, most homeowner's policies come with optional replacement cost coverage, which provides for the actual replacement cost of a stolen or destroyed item as opposed to the actual cash value.