The substitution cost is typically higher than the first cost since it incorporates the resource’s ongoing business sector cost in addition to any expenses related with supplanting it.
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.
You would get the money you need to get the house back to how it was before, less the deductible you have to pay first.
This RCV could also cover the costs of labor and materials for removing debris, rebuilding the roof, and fixing the attic.
