Replacement Cost Insurance Coverage

2/24/2022 (Permalink)

Replacement Cost

When old property is involved, the deduction for depreciation might reduce the settled amount to a level below the actual replacement cost. In such a case, a carrier may allow an insured to pay additional premiums for an endorsement that substitutes a replacement cost for an actual cash value. Under replacement cost coverage, settlement is conditioned upon a claimant actually replacing the damaged or lost property. If the claimant elects not to replace the property, the settled amount is limited to actual cash value.

Another exception to an actual cash value policy is a “stated value” policy, in which the insurer and the carrier agree at the time of issuing a policy that the property in question has a specific value. The carrier must then pay the stated value rather than the actual cash value.

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