Replacement Cost Law and Legal Definition

Replacement cost is the amount that would be required to be paid, at the present time, to replace an asset. In the insurance industry, "replacement cost" is a method used to value a covered item. Replacement cost is not market value, but is instead the cost to replace an asset at its pre-loss condition. It is not the same as market value, which reflects an asset's purchase price if sold. For example, if a house is insured for replacement cost, if you have a loss, your insurance pays to rebuild your home, not buy a new one.