What is Replacement Cost, Replacement Cost Value, RCV, Replacement Cost Coverage ?
Please note, insurance policies seldom supply a definition for replacement cost. However, policies do state how replacement cost coverage is applied. The following information outlines how replacement cost is commonly applied within the insurance community. Some insurance policies read differently and the statements below may not be relevant for your policy.
Replacement Cost -The cost to replace a damage item or property with material of like-kind and quality and with no deduction for depreciation is subject to the following: See below.
The following are conditions for paying replacement cost on buildings as stated in some insurance policies.
b. Buildings under Coverage A or B at replacement cost with deduction for depreciation, subject to the following:
- If, at the time of loss, the amount of insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, we will pay the cost to repair or replace, after application of deductible and with deduction for depreciation, but not more than the least of the following amounts:
- The limit of liability under the policy that that applies to the building;
- The replacement cost of that part of the building damaged for like construction and use on the same premises; or
- The necessary amount actually spent to repair or replace the damaged building.
- If, at the time of loss, the amount of insurance in this policy on the damaged building is less than 80% of the full replacement cost of the building immediately before the loss, we will pay the greater of the following amounts, but not more than the limit of liability under this policy that applies to the building:
- The actual cash value of that part of the building damage; or
- That proportion of the cost to repair or replace, after application of deductible and without deduction for depreciation, that part of the building damaged, which the total amount of insurance in this policy on the damaged building bears to 80% of the replacement cost of the building.
- We will pay not more than the actual cash value of the damage until actual repair or replacement is completed.
- However, if the cost to repair or replace the damage is both:
- Less than 5% of the amount of insurance in this policy on the building; and
- Less than $2,500.00
We will settle the loss according to the provisions 1 or 2 above whether or not actual repair or replacement is completed.
- HO3 policies have replacement cost coverage on the building, unless an endorsement states your coverage will be paid at Actual Cash Value.
- Coverage B property such as: fences, docks, unattahced decks, flag poles do not have a replacement cost benefit.
- If damage to the building is less than $2,500.00 and is also less that 5% of the Coverage A limit, no depreciation should be withheld from your Dwelling settlement.
- The replacement cost does not have to be paid until the repairs are made.
- If you live in Florida, the ACV amount of the loss is to be paid within 90 days after you notify the insurance company of your loss, unless there is an acceptable reason that the claim payment should be delayed.
- The amount paid to you to repair or replace the damage to the builing cannot exceed its policy limit.
- Some insurance policy require you to carry the right amount of insurance in order to receive the full amount of the insurance settlement of the damages.
- If you do not carry the correct amount of insurance on your home, you can be penalized.
- You may be able to receive the full amount of your loss with no deduction for depreciation with a signed contract with the contractor who will be making the repairs.
- Florida Statute 627.7011 slightly changes some of the above provisions. See Florida Statute 627.7011