Replacement Cost

Think of replacement cost as the ‘Amazon’ price for how your insurance company will value stolen or damaged stuff.

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replacement cost

Think of replacement cost as the ‘Amazon’ price for how your insurance company will value stolen or damaged stuff – it’s how much something of the same make and model would go for today, in a similar condition.

Replacement cost, explained

There are two ways insurance companies can pay you after they approve your claim: actual cash value or replacement cost.

Replacement cost is an estimation of how much it’d be to replace (or repair) something that was damaged or stolen with a similar item available on today’s market with respect to quality, make, model, etc.

The biggest difference between the two is that ‘actual cash value’ takes into account depreciation (the decrease in value overtime), and replacement cost doesn’t. We’ll speak about that more in the following sections.

Just note: you’ll have to pay a few extra $$ on your monthly premium for replacement cost, since it’s more comprehensive than its counterpart.

Replacement cost vs actual cash value

Think about replacement cost as the “Amazon price” of a given item. It’s how much something would cost today of a similar make and model, in a similar condition.

Actual cash value, on the other hand, is like the “eBay price” of used items. It’s how much something would go for today (same make and model), but takes into account depreciation.

Examples of replacement cost

Replacement cost and stolen items

Let’s say you bought an iPhone 13 right when it was released back in 2021 for $799 (the most basic model). One year later, it was stolen on the train. You sent over all the documentation to your insurance company (original receipt, make and model, and a police report of the incident). The same phone today costs $667.

If you opted for replacement cost, if you make a claim and it’s approved, you’ll receive a check or wire transfer for that amount in your bank account (minus your deductible, of course).

While you may feel entitled to that extra $100, that’s not how replacement cost works. That’s because it takes into account how much that same item – same make and model – is sold today.

House repairs and replacement cost

Let’s explore a different angle, where you’d actually receive more money than you put in originally:

Say your best friend is a contractor and hooked you up with a brand new central AC a few years ago for a quarter of the price it’d normally be.

Now, let’s imagine a burst pipe fried your AC after just a year, and you have to replace the whole new system. It’s safe to say that the price of this wouldn’t have dropped so significantly in just a year, so you’d actually get more money to replace the system than you originally put in.

Now make sure to take all of the above into account when you try to calculate your renters insurance or Lemonade homeowners insurance costs

A few quick words, because we <3 our lawyers: This post is general in nature, and any statement in it doesn’t alter the terms, conditions, exclusions, or limitations of the policies issued, which differ according to your state of residence. You’re encouraged to discuss your specific circumstances with your own professional advisors. The purpose of this post is merely to provide you with info and insights you can use to make such discussions more productive! Naturally, all comments by, or references to, third parties represent their own views, and Lemonade assumes no responsibility for them. Coverage may not be available in all states. Please note that statements about coverages, policy management, claims processes, Giveback, and customer support apply to policies underwritten by Lemonade Insurance Company or Metromile Insurance Company, a Lemonade company, sold by Lemonade Insurance Agency, LLC.  The statements do not apply to policies underwritten by other carriers.

Please note: Lemonade articles and other editorial content are meant for educational purposes only, and should not be relied upon instead of professional legal, insurance or financial advice. The content of these educational articles does not alter the terms, conditions, exclusions, or limitations of policies issued by Lemonade, which differ according to your state of residence. While we regularly review previously published content to ensure it is accurate and up-to-date, there may be instances in which legal conditions or policy details have changed since publication. Any hypothetical examples used in Lemonade editorial content are purely expositional. Hypothetical examples do not alter or bind Lemonade to any application of your insurance policy to the particular facts and circumstances of any actual claim.