Definition: Replacement Cost - Explained

The current amount it takes to replace an asset or item of similar value is the replacement cost. Often used in association with replacement cost insurance. Which can apply to consumers and companies alike.

Although replacement costs pertaining to the home, as found in homeowners policy's usually deal with the cost to replace with a similar structure.

Obviously the time to consider whether an asset should be covered at the cost of replacing it is before the item happens to incur damage, becomes ruined, or comes up stolen.

You may want to periodically review your insurance policies to see if coverages are in place to cover acquiring new assets or items at their current price levels. This is particularly important during years of price swings, such as for real estate in the past number of years with home prices declining in relation to the costs of new home construction.

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