What Is Replacement Cost?

Many of your commercial insurance policies contain Replacement Cost Valuation come loss time.  The easiest definition of replacement cost is, what it would cost one nanosecond before an insured’s loss to replace the item new with its same utilitarian-like abilities as the old object that was destroyed?

At loss time your Replacement Cost Valuation is subject to negotiation with your insurance carrier as the valuation can be determined through a number of ways that can be of benefit to an insured.  As an example, at the time you purchase property insurance, it is your obligation to determine the amount of coverage you wish to have as the replacement. Usually there is no absolute reliable determination that is reasonable in cost. Most insureds are forced to use an educated guess as to that value for their insurance broker to purchase coverage. 
The insured causes themself a potential problem if their guesstimate is wrong in an instance where there is a loss that is significantly less than the amount insured.  

Most insurance companies have a co-insurance clause that will cause a penalty that comes into play when there is a partial loss and not a total loss of that insureds property. Since most losses are partial losses, the insured is very disturbed when he learns that the insurance carrier is going to pay him a lesser amount than he had hoped due to the co-insurance clause being imposed.

Your insurance broker can play a significant role in aiding you in the adjustment of the claim with your insurance company.  There are many situations where the insured is adept at construction or has access to certain tradespeople that are willing to perform services for less than the general marketplace and such information needs to be transmitted to your insurance carrier in a persuasive manner.

That’s how we do it at Bone Robertson & McBride Inc.


With good health to you,

Don Bone

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