Replacement Cost Method Law and Legal Definition

Replacement cost method is a technique used to determine the value of an insured item in insurance industry. When an insurance company uses the replacement cost as the method of computing the value of a claim, customer’s insurance premiums will be higher due to the larger payout when a loss occurs.

The following is an example of a case law on replacement cost method:

The following is an example of a case law defining replacement cost:

Replacement cost is the actual cost of repair or replacement without deduction for depreciation. [Ditch v. Yorktowne Mut. Ins. Co., 343 Pa. Super. 22 (Pa. Super. Ct. 1985)].