StateCover Guide
Glossary

Replacement cost

By Editorial team, last reviewed

Quick answer

Replacement cost is what it would cost to replace damaged or stolen property with new property of like kind and quality in your local market, with nothing subtracted for wear and tear. It contrasts with actual cash value (ACV), which does subtract depreciation.

How it works in car insurance

Standard auto policies settle damage to your own car at actual cash value. The Texas Department of Insurance explains that if your car is totaled, the insurer pays its value minus depreciation, meaning the price of a used car of the same age, not a new one of the same make and model.

Example: an item would cost $1,000 to replace new, and depreciation for its age and wear is $400. Actual cash value pays $600. Replacement cost would pay $1,000.

Where replacement cost comes up for drivers:

  • Optional coverages. If a policy or endorsement promises replacement cost for your car, read its conditions closely, such as how old the car can be and what counts as a replacement.
  • Loans. Because ACV falls as a car ages, a payout can be less than your loan balance. Gap insurance addresses that shortfall; it is not the same as replacement cost.

Sources

Last reviewed by the StateCover Guide editorial team. See our editorial policy. Spotted an error? Tell us.