The amount it would cost to replace damaged or destroyed property with new items of similar kind and quality, without deducting for depreciation. Replacement cost coverage typically results in higher claim payments than actual cash value coverage.
Related Terms
Actual Cash Value
The current market value of property at the time of a loss, calculated as replacement cost minus depreciation. If your five-year-old roof is damaged, an actual cash value policy pays what a five-year-old roof is worth today — not the cost of a brand-new roof.
Depreciation
The decrease in the value of property over time due to age, wear and tear, or obsolescence. In insurance, depreciation determines the difference between replacement cost and actual cash value when settling a claim.
Dwelling Coverage
The part of a homeowners insurance policy that pays to repair or rebuild the physical structure of your home if it is damaged by a covered peril such as fire, wind, or hail. Dwelling coverage should equal your home's estimated rebuilding cost, not its market value.