Replacement Cost
What Is Replacement Cost?
In insurance, replacement cost is the amount an insurer will pay for a claim to replace damaged property with something of the same like, kind, and quality. Replacement cost does not deduct for age or normal wear and tear (aka depreciation), unlike Actual Cash Value (ACV), which does include depreciation.
How Is the Replacement Cost Determined by the Insurer?
Insurers typically use current market or retail prices, cost databases, or quotes from relevant vendors (like industry-specific equipment suppliers) to determine an item’s replacement cost.
If there is no exact match for the damaged property available, insurers make their best effort to find an item of the same like, kind, and quality. A “like kind” item is the next closest version of the original item that is currently available.
How Do I Know If My Policy Includes Replacement Cost Coverage?
Your policy documents will state whether your property is insured on a replacement cost or actual cash value basis. It is typically listed on your policy’s declarations page.
Otherwise, you can contact us directly to find out at info@insurancecanopy.com or call us at 844.520.6993. Customer support is available Monday – Friday 8:00 am – 8:00 pm EST.
Insurance Replacement Cost vs Actual Cash Value: How It Works
Actual cash value is the original cost of the item, minus depreciation.
Replacement cost is the cost to replace your lost or damaged item with a new, like item. It is not the object’s original purchase price, and it does not apply depreciation.
For example, say you’re a photographer and videographer with a lighting kit you paid $1,500 for two years ago. Today, the same rig costs $2,000. In this case:
ACV = original purchase price ($1,500) – depreciation = $1,200
Replacement cost = a new, currently for sale version of the same rig = $2,000
If your policy has a deductible, it applies in either case. So, if you have a $100 deductible, your claim payment would look like one of the following.
With actual cash value coverage:
Claim payment = original cost ($1,500) – depreciation – $100 deductible = $1,100
With replacement cost coverage:
Claim payment = current market price for the same rig ($2,000) – $100 deductible = $1,900
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