The amount it would cost to replace damaged or destroyed property with new property of similar kind and quality, without deducting for depreciation. Replacement cost coverage is more expensive than actual cash value coverage but provides better protection because you receive enough money to buy a brand-new replacement. It is commonly available for home and contents insurance.
Understanding replacement cost is important for Canadian insurance consumers because it directly affects how your coverage works and what you can expect when you need to use your insurance. This is a foundational insurance concept that applies across multiple types of coverage and is worth understanding regardless of what insurance you carry.
If you have questions about how replacement cost applies to your specific insurance needs, speaking with a licensed insurance broker can help clarify your options and ensure you have the right level of protection.
The decrease in value of property over time due to age, wear and tear, or obsolescence. In insurance, depreciation is used to calculate actual cash value by subtracting the accumulated depreciation from the replacement cost of an item. Understanding depreciation is important when choosing between actual cash value and replacement cost coverage.
A provision in property insurance that requires the policyholder to insure their property to a certain percentage of its value, typically 80%. If the property is underinsured, the policyholder becomes a co-insurer and must absorb a proportional share of the loss. For example, if you insure your home for only 60% of its value with an 80% co-insurance clause, you would only receive 75% of any claim.
A licensed insurance broker can explain how replacement cost applies to your specific situation and help you find the right coverage.
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