Glossary

Replacement cost

What it would cost to replace damaged property with new property of like kind and quality, with no deduction for depreciation.

Also called: replacement value, replacement cost value, RCV

Replacement cost is the amount needed to replace something with a new item of similar kind and quality, with no deduction for age, wear or depreciation. It contrasts with actual cash value (ACV), which is replacement cost minus depreciation: what the item was worth just before the loss.

Standard auto policies pay for a totaled car based on ACV, not replacement cost. That is the key point for drivers: if a five-year-old car is totaled, the insurer pays what a similar five-year-old car was worth, not the price of a new one. Example: a new version of your car costs $36,000 and your three-year-old model has an ACV of $24,000. A standard policy pays based on $24,000, while replacement cost protection would pay closer to $36,000 (hypothetical figures).

For cars, replacement-cost-style protection comes through add-ons. new car replacement pays for a brand-new car of the same make and model if a recent car is totaled, and some insurers offer a version that pays for a slightly newer used car. In repairs, insurers may apply betterment when new parts leave the car worth more than before. Homeowners and renters policies more often offer replacement cost for personal belongings, including items stolen from a car, which auto policies usually exclude. See how insurers calculate actual cash value.

Last reviewed October 4, 2026

In the index now

Related terms

Actual cash value What a car was worth just before a loss — replacement cost minus depreciation — and the basis of most total-loss payouts. Depreciation The loss in a car's value over time from age, mileage and wear, which insurers account for when calculating actual cash value. New car replacement Optional coverage that pays for a brand-new car of the same make and model if a recent car is totaled, instead of its depreciated value. Agreed value Coverage where you and the insurer set a car's value when the policy is written, and that amount is paid if the car is totaled, with no depreciation. Betterment A deduction an insurer takes when a repair replaces a worn part with a new one, leaving the car in better condition than before the loss. Total loss A car so badly damaged that repairs would cost more than it is worth, or more than a state threshold, so the insurer pays its value instead.

Related guides

How insurers calculate actual cash value How insurers value a totaled or stolen car from comparable vehicles, adjust for mileage, options and condition, and add taxes and fees. New car replacement coverage New car replacement pays for a brand-new car of the same make and model if yours is totaled, not its depreciated value. Rules, limits, alternatives.

Related insurers

Farm Bureau Financial Services Iowa-based Farm Bureau brand writing auto, home and farm coverage in eight Midwest and Western states through exclusive agents, with Driveology telematics.