Is replacement cost the same as insurable value?


Let us define the following terms first and differentiate them afterwards.

Replacement cost refers to a kind of payment settlement wherein a damaged property or possession in your business will be replaced according to its type. The insurance agency will replace the equipment with the same kind. You will get the exact same items like the ones you lost. The key word here is equal value.

In contrast, insurable value is the maximum amount that will be given to you in cases of damage and destruction. This is the ceiling amount that your insurer can cover.

Knowing the definitions of replacement cost and insurable value, it is now easier to compare and contrast the two entities. Both replacement cost and insurable value are kinds of settlement. The only thing that differentiates one from the other is their application.

Suppose your town was hit by an earthquake. If your insurance policy offers replacement cost, all the damaged possessions inside your house will be replaced with the same kind. If the furniture and appliances in your dining hall were damaged, the items will be replaced with the same kind regardless of its market value.  However, insurable value works by giving you the maximum amount you can spend to repair the damages.

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