Also known as: Replacement cost value · RCV
A property valuation method that pays what it costs to replace damaged property with new, without deducting for depreciation.
Replacement cost is the amount needed to repair or replace damaged property with equivalent new property at current prices, with no deduction for wear and tear. It contrasts with actual cash value (ACV), which subtracts depreciation and pays only what the item was worth at the time of loss. A property policy written on a replacement-cost basis pays more on a claim than an ACV policy, which is why the valuation basis matters as much as the limit. Businesses insuring equipment, tenant improvements, or inventory should confirm which basis their policy uses.
Replacement cost pays what it costs to replace property with new, current-price property, with no deduction for depreciation. Actual cash value (ACV) subtracts depreciation and pays only what the item was worth at the time of loss, so ACV payouts are lower.
For most businesses, yes. Replacement-cost coverage pays enough to actually replace damaged equipment or property, rather than its depreciated value, which is usually what you need to keep operating. It typically costs more in premium but closes a large gap at claim time.
Definitions are educational and may be modified by your specific policy language, endorsements, and state rules. For regulatory guidance, refer to the California Department of Insurance or the NAIC.
Last updated: July 2026.