Replacement Cost
Replacement Cost is a valuation method that pays the full cost to replace damaged property with new items of similar quality, without deducting for depreciation.
What You Need to Know
If your 7-year-old commercial oven is destroyed, replacement cost coverage pays for a brand-new equivalent oven, not just the depreciated value of your old one.
Why It Matters for Restaurant Owners
Replacement cost coverage costs 10-20% more than actual cash value coverage but prevents massive out-of-pocket expenses when equipment needs replacement. The difference between ACV and replacement cost on a $100,000 equipment loss could be $30,000-$50,000 — far more than you'll save on premiums over the policy period.
Virtually all restaurant owners should elect replacement cost coverage for both building (if owned) and contents.
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