When a fire or other covered loss damages insured property, the first relief for a business owner is knowing they have insurance. The next decision, however, can be challenging: should you rebuild or replace the property — or simply take the cash settlement?
This choice depends on your policy terms, whether replacement cost coverage applies, and if a co-insurance penalty comes into play. 
Replacement Cost vs. Actual Cash Value
Commercial property insurance is usually written on one of two bases:
- Actual Cash Value (ACV): The value of the damaged property at the time of loss. Its definition varies by state — often replacement cost minus depreciation, but sometimes fair market value depending on case law or regulation.
- Replacement Cost (RC): Pays what it would cost to repair or rebuild with new materials of like kind and quality, without depreciation.
If your policy includes replacement cost and no co-insurance penalty applies, you’ll have the flexibility to either rebuild or accept the cash settlement.
No Co-Insurance Penalty: What That Means
Co-insurance clauses require you to insure property to a set percentage of its value (commonly 80–100%). If you’re underinsured, you share in the loss.
When there’s no co-insurance penalty, the insurer typically pays:
- ACV upfront after the loss, and
- The replacement cost difference once the property is actually repaired or replaced.
How Long Do You Have to Replace?
Most policies give insureds about 180 days from the date of loss to notify the insurer of their intent to replace and to complete the work. Extensions may be possible, but if you choose not to rebuild, the settlement usually stops at the ACV amount.
Can You Rebuild Elsewhere?
Many replacement cost policies allow you to rebuild at a different location, as long as the cost is no greater than it would have been at the original site. This gives flexibility if, for example, an older building in a less desirable area is destroyed and you prefer to relocate.
Always confirm with your policy wording since terms vary.
What to Consider at Claim Time
The choice between taking a cash settlement and rebuilding is not just financial — it’s strategic. Key considerations include:
- Cash flow: Do you have resources to front rebuilding costs until reimbursement?
- Business continuity: Is the current site viable, or does relocation make more sense?
- Market conditions: Would reinvestment at a new location better serve long-term growth?
- Tax treatment: Settlement structures may have different tax impacts.
Bottom Line
A replacement cost policy provides important flexibility:
- You can take the ACV payout and stop there, or
- Replace the property within policy timelines to recover full replacement cost benefits.
And in many cases, you can rebuild at another location if it better suits your business.
The key is knowing your options in advance. Reviewing your policy language — especially definitions of ACV, co-insurance requirements, and replacement timelines — helps you make informed choices under pressure.
💡 If you’d like a review of your commercial property policy to clarify how it would respond at claim time, our team is here to help.
📞 Contact Aimee Padden at (925) 674-1000
📧 Email us at info@brmins.com to schedule a no-obligation consultation.
This blog is for general informational purposes only and should not be considered legal advice.