Last week we talked about Actual Cash Value, so this week it is only fitting that we talk about the flipside, which is Replacement Cost. Replacement cost is pretty much what it sounds like – the cost to replace your building, house, vehicle, personal property, etc. if it is completely destroyed.
How is the replacement cost calculated? Depending on the item in question, it is calculated in a variety of ways.
For a home or building, the insurance companies in the United States use what is called an MSB (Marshall & Swift/Boeckh) Report. This system calculates the replacement value of your building based on the building characteristics of the current one. Characteristics will include construction type of the exterior of the building, interior wall coverings, floor coverings, bathroom number and quality, kitchen number and quality, and pretty much anything else you can think of! Insurance companies plug in the information to the MSB valuation calculator, and it will calculate what the cost would be to replace your building if it were destroyed.
For a car or other vehicle, replacement cost is basically what it would cost to buy a new version of the car you own. It is uncommon for insurance companies to offer replacement cost on a vehicle, but it is a possibility. Again, you would only receive the full amount if the car was totaled (whether stolen or destroyed), otherwise, you would receive the amount to repair your car minus the deductible.
Personal property is a little harder to calculate, as you have to have a complete list (or schedule, in insurance terms) of every item lost, then the company will calculate the fair market value to replace those items as new.
If you have questions about Replacement Cost, please feel free to reach out!