14. What Is “Replacement Cost” (RC)?

“Replacement cost” or Guaranteed Replacement Cost is the current price of a like-kind vehicle if it were to be purchased new, as opposed to the depreciated value of the vehicle at the time of the loss.

“Replacement Cost” takes into consideration the increase in the pricing of a vehicle. It is conceivable that over time, a fully and properly restored classic vehicle, providing it was maintained properly, would increase in value. Should a vehicle be insured under a “Replacement Cost” policy, and be stolen or destroyed, the owner would receive the cost to replace the vehicle at the time of the covered loss.

In the insurance industry, “replacement cost” is relative to a insurance policy provision which pays for the full cost of replacing damaged property without a deduction for depreciation and without a dollar limit. This policy is different from an actual cash value policy, which takes into account depreciation for lost and damaged items, if the damage resulted from an insured peril.

Whereas depreciation is an anticipated loss in value based on age and condition, appreciation is an increase in the market value of a property due to changes in market conditions or other causes, especially over time. Appreciation is the opposite of depreciation.

Example: Suppose you bought a new television five years ago for $600 and it was stolen or destroyed in a fire. With a “Replacement policy, If your television was stolen or damaged beyond repair you would receive the amount necessary to buy a replacement like, kind quality television at the current market price, which may be more or less than the original $600.00.


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