Replacement Cost Clause

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What does Replacement Cost Clause mean? Read on to discover the definition & meaning of the term Replacement Cost Clause - to help you better understand the language used in insurance policies.

Replacement Cost Clause

Replacement Cost Clause

A replacement cost clause is a clause in an insurance contract that states that the full replacement value will of an item will be reimbursed in the event of a total loss. Replacement value is importantly different from actual cash value. While actual cash value takes into account wear and tear and depreciation, replacement value doe not. So, if your insurance policy has a replacement cost clause, you will be reimbursed for the full initial purchase price of the asset, as opposed to the value of the asset at the time it was lost.

More Insurance Terms And Definitions

The Merriam-Webster Dictionary defines insurance as:

a: The business of insuring persons or property.

b: Coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril.

c: The sum for which something is insured.

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