What does replacement value insurance cover?

Replacement value insurance covers the cost of repairing or replacing a damaged or lost item without considering depreciation. This means that if an insured item is damaged, the insurance will provide sufficient funds to either repair the item or replace it with a new one of similar kind and quality, regardless of the item’s current market value or age.

This type of coverage is particularly beneficial as it ensures that you can restore your property to its original condition, which helps prevent financial loss from depreciation. By contrast, other options like partial costs for repairs or only covering cash equivalents would not fully compensate for the loss, as they either limit the coverage or hinge upon a depreciated value, potentially leaving the policyholder underinsured. Legal expenses associated with claims are also not covered under replacement value insurance, which focuses solely on the physical replacement or repair of property.