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January 10, 2017

Replacement Cost is one of the 3 methods of calculating insurance values.  The others are Actual Cash Value and Book Value.  Book Value is more of an accounting term and not useful in insurance.

Replacement Cost is the amount of money it takes for the insurer to repair or replace the damaged property with something of like kind and quality to the best of their ability.  The main difference between this and Actual Cash Value is that Replacement Cost does not have depreciation so it offers more “complete” coverage to the insured.  As a result, it is also more expensive.

I originally wrote a version of this for Insuranceopedia.

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