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Property insuranceSubject 12 of 19

Replacement cost

Replacement cost is a loss-settlement basis tied to the cost to repair or replace covered property without a deduction for depreciation, subject to policy terms.

Direct answer

What does replacement cost mean?

Replacement cost is a loss-settlement basis tied to the cost to repair or replace covered property without a deduction for depreciation, subject to policy terms.

Exam cue: Read the policy conditions, limits and timing, because the policy language controls how replacement cost is defined and when it is paid.

What does it look like in a question?

Example

A covered roof loss is settled using the cost of comparable replacement without an age deduction when policy conditions are met.

Common exam trap

What should you not confuse it with?

Replacement cost is not necessarily the property's market value.

Related property insurance terms

Actual cash valueActual cash value is a loss-settlement measure commonly based on replacement cost less depreciation, subject to the policy language.DeductibleA deductible is the portion of a covered loss the insured must bear before the insurer's payment is calculated under the policy.ExclusionAn exclusion is a policy provision that removes specified property, causes of loss, people or situations from coverage.HazardA hazard is a condition that increases the chance or severity of loss.Liability coverageLiability coverage is insurance protection for covered claims that the insured is legally responsible for bodily injury or property damage to others.PerilA peril is an event or cause of loss, such as fire or theft, addressed by the insurance contract.
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