replacement cost

In property insurance, replacement cost refers to the amount it would cost to replace damaged or destroyed property with new materials of like kind and quality, without deduction for depreciation. This is an alternative to actual cash value (ACV), which is the replacement cost minus an allowance for depreciation.1

Depreciation insurance can be added to a fire insurance policy to cover the difference between the actual cash value and the replacement cost of insured property. Homeowner's insurance policies may offer full replacement cost coverage if the policy is for at least 80 percent of the property's replacement value. If the coverage is less than 80 percent, a coinsurance clause may reduce the recovery amount.21