Replacement Cost
What is Replacement Cost in Insurance?
Replacement cost is the amount an insurer will pay to replace damaged property with a new item of the same like, kind, and quality, without subtracting depreciation.
Claims paid on a replacement cost basis are still subject to your policy’s limits, sublimits, and deductible.
Why it Matters for Beauty and Bodywork Professionals
- Claim payments: Most business personal property and equipment claims are paid on an actual cash value basis, not a replacement cost basis.
- High-value equipment: If you want replacement cost coverage for expensive, high-end tools, electronics, or other items, you may need to get additional coverage specifically for those items
Replacement Cost vs Actual Cash Value (What’s the Difference?)
Replacement cost and actual cash value (ACV) are the two primary valuation methods used by insurers for property claims.
Swipe →
| Replacement Cost (RC) | Actual Cash Value (ACV) | |
|---|---|---|
|
What it pays |
Today’s cost to buy a new, similar item |
The original purchase price or the replacement cost minus depreciation for age/wear and tear |
|
Common requirement |
Often paid on a reimbursement basis — after you replace the item and submit proof/receipts
|
Typically paid up front (less your deductible)
|
|
Typical premium |
Higher
|
Lower |
|
Deductible applies |
Yes |
Yes |
How Do Replacement Cost Payouts Work? (Limits, Deductibles, Scheduling)
Deductibles (if you have one) and coverage limits always apply to claim payouts, whether your policy pays replacement costs or actual cash value.
Claim Payouts and Deductibles
Say you’re an esthetician with a professional facial steamer that originally cost $800. A comparable new model now costs $900. If you have a replacement cost policy with a $100 deductible, your final claim payment would look like:
Replacement cost: $900
Deductible: $100
Claim payout: $900 – $100 = $800
Depending on the insurance company, you may need to replace the lost item first. When they receive proof of your purchase, they will then reimburse you, minus any deductible.
Other insurance companies may pay the item’s actual cash value first (less your deductible). Then, after you replace the item, issue you a second payment for the difference.
Claim Payouts and Limits
Say your policy has a per-item limit of $2,000 and pays replacement cost values. You have a claim for your multifunction skincare system that costs $2,300 to replace. Your policy will only pay $2,000, because that is the maximum amount it can pay for any one item.
Scheduling
If you’re a spa or salon owner or use high-value equipment, you may need to contact your insurer about scheduling your high-end tools. Scheduling is the process of individually evaluating and listing items in your policy to ensure you have the right amount of coverage.
What To Keep on File for Smooth Claims
To help the claims process run more smoothly and quickly, keep this information in an organized, readily accessible place.
- An itemized inventory of tools and supplies with make/model numbers, purchase dates, and amounts paid
- Photos of each item with serial numbers
- Receipts/invoices or bank statements for significant purchases
- A copy of your insurance Declarations Page showing limits and replacement cost/ACV language
- Any endorsements/schedules that list specific high-value equipment
Related Terms
- Actual Cash Value
- Inland Marine Coverage (Tools and Supplies)
- Property Insurance
- Deductible
- Limit of Insurance
- Declarations Page
- Proof of Loss
- Coverage Details
