waterdamagequotesInsurance · how a claim is valued
Replacement cost vs actual cash value: what your water damage claim will actually pay
After a water loss, two numbers decide how much of the damage you pay for yourself. One is the deductible, which everybody knows about. The other is whether the policy settles at replacement cost or at actual cash value — and on a flooded basement full of ageing flooring, furniture and appliances, that one line on the declarations page changes the cheque.
This page uses only neutral sources: the Insurance Bureau of Canada’s glossary, the Financial Consumer Agency of Canada, the General Insurance OmbudService, Ontario’s regulator, and the statutory conditions in Ontario’s Insurance Act. It explains what each basis pays, what depreciation means in practice, and the formal route when you and the insurer disagree about the amount.
The short version
- Actual cash value pays what the item cost new, minus depreciation. Replacement cost pays to repair or replace it without the depreciation deduction.
- Replacement cost generally follows actually replacing: IBC says a home not rebuilt on the same site is typically settled at actual cash value.
- Ontario’s regulator tells buyers to ask which basis a policy uses before buying. It is on the declarations page, not in the marketing.
- A disagreement about the amount has its own route in Ontario — appraisal under statutory condition 11. A disagreement about coverage does not.
The names on the policy
| What you would say | What the policy or IBC calls it | What it changes |
|---|---|---|
| What it was worth | Actual cash value (ACV) | Value at the time of the loss, after depreciation |
| What it costs to buy new | Replacement cost / replacement value | Repair or replace without deducting depreciation |
| Wear and tear | Depreciation | IBC: reduction in value through use, ageing, deterioration and obsolescence |
| A like-for-like swap | Replacement cost clause | Something similar, same use, not necessarily identical |
| No ceiling on the rebuild | Guaranteed (in Quebec, enhanced) replacement cost | Pays above the dwelling limit, on conditions |
| Being under-insured | Co-insurance clause | If coverage is insufficient, you pay part of the loss |
| The claim form | Proof of loss | A sworn inventory, including actual cash value, in Ontario |
| Arguing about the number | Appraisal | Binding on the amount; cannot decide coverage |
What each basis pays
Financial Consumer Agency of Canada, Home insurance · 2025
Page modified October 16, 2025. FCAC adds that depreciation depends on the item and the insurance company, and that replacement value coverage “gives you the actual cost to replace an item following a covered loss”. Either way, it says, you are always responsible for paying the deductible.
General Insurance OmbudService (GIO), Insurance 101: Property and Home Insurance Terms to Know · 2025
GIO says this applies to the house (the dwelling) and to personal belongings, and defines actual cash value as the value of the property at the time of the loss, factoring in depreciation. Published February 7, 2024, modified December 2, 2025.
Put simply: on an actual cash value basis, the insurer pays what the damaged thing was worth on the day of the loss. On a replacement cost basis, it pays what it costs to put a comparable thing back. The gap between them is depreciation, and nobody sets it but the insurer: FCAC notes that it depends on the item and the company.
Insurance Bureau of Canada, Glossary · 2026
IBC's definition of actual cash value, which it says is usually calculated in one of three ways: cost to repair or replace less depreciation; fair market value; or consideration of all relevant evidence of the value of the damaged property. IBC defines depreciation as a reduction in value through use, ageing, deterioration and obsolescence.
Insurance Bureau of Canada, Glossary · 2026
IBC's definition of what a replacement cost clause provides. “Similar” and “not necessarily identical” are the words most water damage flooring and cabinet disputes turn on.
Why it matters more on a water loss
IBC’s clearest statements on settlement bases are written about total losses such as wildfires. A basement water loss is a different shape of claim: the building stands, and what is damaged is a collection of old things: flooring, drywall, a carpet, the contents of a finished basement, a furnace or a water heater sitting in the water. Every one of those has an age, and on an actual cash value basis every one of them is depreciated before you see a cheque.
Two practical consequences follow. First, a finished basement that floods is where the settlement basis tends to show up, because so much of what is in it has an age. Second, the “similar, not identical” wording of a replacement cost clause is where most flooring and cabinet arguments start: a discontinued floor can be replaced with a similar one, and the policy does not promise the rest of the room will match.
Financial Services Regulatory Authority of Ontario, Helping you navigate property insurance · 2026
One of the questions Ontario's regulator tells consumers to ask before buying. The next one on its list: am I covered for sewer backup, and if so, to what amount.
Ontario’s regulator puts this question at the top of its list for a reason: it is decided when the policy is bought, not when the basement floods. The next question on its list — whether you are covered for sewer backup, and to what amount — is the one this site keeps coming back to on the sewer backup page.
Replacement cost follows replacing
Insurance Bureau of Canada, Wildfires and Insurance · 2026
IBC's statement is about total losses, and it says “typically” and “check your policy”. It is the clearest neutral statement of the principle that replacement cost follows actually replacing. This site found no neutral source giving a time limit for doing so; that limit, where one exists, is in the policy wording.
The principle IBC describes for a total loss applies in spirit to smaller ones: replacement cost is a promise to pay for replacement, and a policyholder who does not replace is commonly settled at the depreciated value. This site found no neutral source setting a time limit for replacing; where there is one, it is in your wording, and it is worth finding before you decide to take the cheque and not do the work.
Financial Consumer Agency of Canada, Insurance for unexpected events and disasters · 2026
FCAC's example: whether it is based on your home's actual cash value or its replacement value. Read through a fetch service; canada.ca blocks automated reads.
Limits, guaranteed replacement and underinsurance
Insurance Bureau of Canada, Glossary · 2026
Guaranteed replacement cost — “provided certain conditions are met”, and called enhanced replacement cost in Quebec. FCAC lists typical conditions: insuring for the full replacement cost as your insurer determines it, telling the insurer about improvements that increase the home's value, and rebuilding on the same site.
Insurance Bureau of Canada, Glossary · 2026
From IBC's definition of a co-insurance clause. Underinsurance does not only bite on a total loss; under a co-insurance clause it can reduce a partial one.
A replacement cost basis is only as good as the limit above it. A dwelling limit set years ago, before a basement was finished or a kitchen redone, can leave a gap that no settlement basis closes — and under a co-insurance clause, the shortfall can reduce a partial claim as well as a total one. FCAC's list of guaranteed-replacement conditions includes telling your insurer about improvements that increase the home's value, which is the step people forget after finishing a basement.
The proof of loss and the 60-day clock
Insurance Act, R.S.O. 1990, c. I.8, s. 148, statutory condition 6(1)(b) · 2026
What an Ontario proof of loss must contain, verified by statutory declaration. Section 148 makes the statutory conditions part of every contract to which it applies. It sits in Part IV of the Act, which s. 143(1) says applies to insurance against loss or damage arising from the peril of fire; how far the conditions reach a loss caused by water is a legal question this site does not answer. Read from the consolidation in force from January 1, 2026.
Insurance Bureau of Canada, How to file a home insurance claim · 2026
The proof of loss form lists all damaged or lost property with the value or cost, and IBC notes you must sign and swear that the statements you make are true. It is the single hardest deadline in a Canadian home claim and it is the one people discover late.
Note what the Ontario statutory condition asks for: a complete inventory, with quantities, costs and actual cash value. That is not a statement about how you will be paid; it is what the insurer is entitled to see. Keeping damaged items until the insurer has seen them — IBC’s advice — is what makes an inventory possible.
Insurance Act, R.S.O. 1990, c. I.8, s. 148, statutory condition 12 · 2026
Condition 13 lets the insurer choose instead to repair, rebuild or replace, giving written notice within 30 days after receipt of the proofs of loss and starting the work within 45. The same Part IV scope caveat applies.
When you disagree about the amount
Insurance Act, R.S.O. 1990, c. I.8, s. 148, statutory condition 11 · 2026
The condition continues: there is no right to an appraisal until a specific demand is made in writing and until after proof of loss has been delivered. Under s. 128, each side appoints an appraiser, the two appoint an umpire, each side pays its own appraiser, and the two share the umpire and the expenses. GIO notes that appraisal settles valuation only — coverage and policy interpretation cannot be decided by it.
General Insurance OmbudService (GIO), What to do if you have a value disagreement with your Insurer · 2025
GIO describes appraisal as a binding contractual process available to settle valuation disputes. Two different disagreements, two different routes: “how much” goes to appraisal; “whether” goes to the complaint process and, if needed, a court.
Keep the two kinds of disagreement apart, because they go to different places. If the insurer accepts the claim but values it lower than you do, appraisal is the statutory route in Ontario, it is binding, and it starts only with a written demand after the proof of loss. If the insurer says the loss is not covered at all, appraisal cannot help; that goes through the insurer’s complaint process and the ombudservice, set out on our page on what to do when a water damage claim is denied.
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Questions people actually ask
What is the difference between actual cash value and replacement cost?
Actual cash value pays the value of the property at the time of the loss, factoring in depreciation; replacement cost pays the cost to repair or replace it without factoring in depreciation, according to the General Insurance OmbudService. FCAC describes actual cash value as the cost of the item new, minus depreciation.
What is depreciation in a home insurance claim?
The Insurance Bureau of Canada defines depreciation as a reduction in value of property through use, ageing, deterioration and obsolescence. FCAC notes that the depreciation depends on the item insured and the insurance company.
Do I get replacement cost if I don't replace the item?
Generally not. IBC says that, typically, if a home is not rebuilt on the site where it was before the loss, the policy covers its actual cash value. This site found no neutral source setting a deadline for replacing; check your policy wording.
What is guaranteed replacement cost?
IBC defines it as an undertaking to pay the cost to repair or replace the dwelling even if it exceeds the amount of insurance, provided certain conditions are met. FCAC lists typical conditions, including insuring to full replacement cost, telling the insurer about improvements and rebuilding on the same site.
What can I do if I disagree with the insurer's valuation?
In Ontario, statutory condition 11 in the Insurance Act provides for appraisal when there is disagreement about the value of property or the amount of the loss, after a written demand and a delivered proof of loss. GIO notes that appraisal cannot decide coverage or policy interpretation disputes.
How long does the insurer have to pay?
Ontario's statutory condition 12 says the loss is payable within 60 days after completion of the proof of loss, unless the contract provides for a shorter period. The statutory conditions sit in the Act's fire insurance Part; how they apply to a water loss is a legal question.
Where to read next
- When a water damage claim is denied
- Public adjusters: licensing and fees
- Deductibles and settlement
- How a Canadian water claim runs
- Twelve water situations compared
Sources cited on this page
- Financial Consumer Agency of Canada, Home insurance
- General Insurance OmbudService (GIO), Insurance 101: Property and Home Insurance Terms to Know
- Insurance Bureau of Canada, Glossary
- Financial Services Regulatory Authority of Ontario, Helping you navigate property insurance
- Insurance Bureau of Canada, Wildfires and Insurance
- Financial Consumer Agency of Canada, Insurance for unexpected events and disasters
- Insurance Act, R.S.O. 1990, c. I.8, s. 148, statutory condition 6(1)(b)
- Insurance Bureau of Canada, How to file a home insurance claim
- Insurance Act, R.S.O. 1990, c. I.8, s. 148, statutory condition 12
- Insurance Act, R.S.O. 1990, c. I.8, s. 148, statutory condition 11
- General Insurance OmbudService (GIO), What to do if you have a value disagreement with your Insurer
Every figure above was read from the source it is attributed to on September 20, 2026. How we check this.
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