Replacement Cost
Definition
The amount it would cost to replace damaged or destroyed property with new property of similar kind and quality, without deducting for depreciation. Replacement cost coverage pays more than actual cash value but typically costs more in premium. Some policies pay ACV initially and reimburse the depreciation after you actually complete repairs or replacement.
When This Matters
Your 15-year-old roof is destroyed by hail. Replacement cost coverage pays the full $20,000 to install a new roof, rather than the $8,000 ACV after depreciation.
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