The disclosure defines the valuation terms an agent must be able to explain. Start with actual cash value (ACV): the cost to repair, rebuild or replace, less a fair and reasonable deduction for physical depreciation, or the policy limit, whichever is less (Sections 10102 and 2051(b)).
Example: rebuilding a detached garage costs $20,000, fair depreciation is $5,000, and the limit is $12,000. $20,000 − $5,000 = $15,000, but the limit is lower, so ACV pays $12,000.
Replacement cost levels, from narrowest to broadest:
Replacement cost: no deduction for depreciation, but payment stops at the dwelling limit.
Extended replacement cost: adds coverage above the dwelling limit up to a stated percentage or dollar amount. A $400,000 limit with 25% extended pays up to $500,000.
Guaranteed replacement cost: pays the full cost to rebuild regardless of the dwelling limit.
Building code upgrade coverage, also called ordinance or law coverage, pays the added cost of meeting codes and zoning laws in effect at the time of loss or rebuilding. The standard fire form makes no allowance for increased cost caused by an ordinance or law, which is why this option matters.