Cash Value vs. Replacement ValueOnce you have determined the approximate worth of your home and its contents you must decide whether to purchase coverage on an actual cash value or replacement cost basis. If you purchase coverage on an actual cash value basis, your insurance company will determine any amount payable to you as a result of a covered loss by taking the current replacement cost of the contents and subtracting an amount for wear and tear and/or depreciation. It should be pointed out that there is no set formula for calculating depreciation. Not only may different insurers use different formulas, but various formulas may be used depending on the item that has been damaged, furniture vs. clothing vs. appliances, etc.