Glossary

Replacement cost

A valuation basis that pays the cost to repair or replace damaged property with like kind and quality, without deducting for depreciation.

Also called: RC, replacement cost coverage, replacement cost value, RCV

Replacement cost pays what it costs to repair or replace damaged property with new property of comparable material and quality, with no deduction for age or wear. Actual cash value is replacement cost less depreciation. Say a rooftop HVAC unit costs $12,000 to replace and is 60% depreciated. Actual cash value pays $4,800; replacement cost pays $12,000 once the unit is replaced.

In the ISO building and personal property form, CP 00 10, actual cash value is the default valuation. Replacement cost is an Optional Coverage that must be shown in the declarations. Under it, the insurer does not pay replacement cost until the property is actually repaired or replaced, and the work must be done as soon as reasonably possible. You may claim actual cash value first and then claim the difference if you notify the insurer of your intent within 180 days of the loss. When the option applies, the coinsurance test is measured against replacement cost values.

Two pitfalls. Replacement cost does not pay for code upgrades or bigger rebuilds, which is the job of ordinance or law coverage. And limits go stale: the Turner Building Cost Index rose 4.1% in 2025, so a limit set three years ago may sit below today's rebuild cost and trigger a coinsurance penalty. The guide on replacement cost vs actual cash value for business property compares the two bases, and construction cost inflation and your property limits covers keeping limits current.

Last reviewed October 10, 2026

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Related terms

Actual cash value A property valuation basis that pays the cost to replace damaged property minus depreciation for age and wear, not the price of a brand-new item. Coinsurance A property policy condition requiring you to insure to a set percentage of value, or share the loss. (Health plans use the word for a cost share.) Insurance to value Carrying a property limit that matches the full value of what you insure, so a loss is paid in full and no coinsurance penalty applies. Ordinance or law Coverage for the extra cost of rebuilding to current building codes after a covered loss, which a standard property policy excludes or sharply limits. Agreed value A property policy option where insurer and insured agree on the covered value in advance, which suspends the coinsurance penalty for the agreed period.

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Related tools

Coinsurance penalty calculator See what a commercial property policy pays when your limit falls short of the coinsurance requirement, how big the penalty is and the limit that avoids it. Property valuation helper A rough check of your building limit from your own cost per square foot, an optional dated cost trend, code and debris allowances, and your coinsurance.

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