This is a type of insurance policy that pays damages equal to the replacement value of the damaged property, regardless of depreciation.
Replacement cost coverage is one of two major types of policies you can choose from when buying a homeowners or renter’s insurance policy.
Unlike an actual cash value policy which factors in the age and condition of the item when paying out a claim, when you go with a replacement cost policy you won’t have to worry about that.
With a replacement cost policy, the insurance company will pay you the amount of money that it will take to replace the item – regardless of what it’s worth in the market today.
For example, if your five year-old TV is damaged or stolen an actual cash value policy would only pay you the amount that item is worth in today’s market. However, with a replacement cost policy it doesn’t matter how old your TV is. The insurance company will give you the amount of money it will cost you to go out and buy a TV like it at today’s prices.
A replacement cost coverage policy will be more expensive than an actual cash value policy – but it may be well worth the investment.
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