The Witch wildfireburned this home in San Diego County near the city of Poway,Calif.,Tuesday, Oct. 23, 2007. (AP Photo/Chris Carlson)

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The wildfires that recently decimated thousands of acres, homes,businesses and vineyards in California have caused billions ofdolllars in property damage.

When the smoke clears, policyholders will be faced with thechallenge of filing insurance claims, which are likely to becomplicated by California's status as a "valued policy" state. Forthese policyholders, the difference between actual cash value orreplacement cost may be enormous.

Actual cash value means replacement cost of the property at thetime of loss, less depreciation. The determination of the actualcash value of any property would include all relevant evidence thatan expert would use to set the value of the property.

Related: Not all fire insurance policies are thesame: Valued vs. non-valued

Replacement cost means that the insurer will pay the cost torepair or replace after application of the deductible and without adeduction for depreciation.

In valued policy states, generally, insurance law requires thatin case of a total loss to an insured building by a peril specifiedin the law, the amount stated in the policy declarations isconsidered the value of the structure at the time of the loss andis payable in full. If the value of the property at the time ofloss happens to be less than the insurance coverage, the carriercan't argue that the recovery should only be for the actual cashvalue.

As the residents of Tennessee learned in November 2016, theadjusting for the value of the propertydestroyed in Gatlinburg and Sevier County is much different than ina non-valued policy state.

Related: RCV vs. ACV: Know these loss claimsettlement caveats

With the increasing threat of wildfire across the United States,it's important to know how your property — whether it's for yourhome or your business — will be valued in case of a total loss.