Definition Series for the Insurance Illiterate: Replacement Costs

Definition of a Replacement Cost

// the cost to repair or replace property with material of similar kind and quality at today’s prices without deduction for depreciation.

It’s like Actual Cash Value but without  depreciation.

EXAMPLE OF REPLACEMENT COST

John is a decent golfer unless he’s keeping score. He hits the links once a week and recently, made a huge purchase and bought top-of-the line golf clubs and a new driver. One night, someone broke into his house and took the entire set from our front entry way. The insurance company said they could possibly use replacement cost for his golf clubs. What does that mean?”

INSURELY SAYS…

Using replacement cost on your contents (golf clubs) would pay for the cost to replace them. But unlike Actual Cash Value, there would not be a deduction for depreciation. This means John would get a set of new golf clubs, that are available in today’s market of similar kind and quality. Score! 

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