Because it takes into account both the asset’s current market price and any costs associated with replacing it, the replacement cost typically exceeds the original price.
Since it is assumed that the policyholder will use new materials to replace or repair the property, depreciation is not included in replacement costs.
In the event of a loss, insurers may employ this strategy to ascertain the market value of the damaged property and the amount it will cost to completely replace it. The old or damaged asset’s depreciation is not refunded to you.
Depending on your homeowners insurance policy, your insurance provider may offer a replacement cost value (RCV) for your home in the event that it was damaged by a falling tree.
This RCV can also include labor and materials for debris removal, roof rebuilding, and attic repair. Assume you have a 2,200-square-foot roof, and the average cost to replace a roof in your area is between $3.50 and $5.00 per square foot.
You would receive the money needed to restore the home to its previous condition, less the deductible that must be paid first.1 $750 is your deductible. In that case, you can anticipate receiving an offer from your insurance provider ranging anywhere from $6,950 to $10,250.
