What is replacement value coverage?

Answer 1

This is defined as the cost to repair without regard to depreciation. All the homeowners policies that I have seen have a cap of 4 time the ACV or the policy limit, whichever is less. When you have a full replacement cost policy you also have the requirement to carry full replacement cost value on your policy at 100%. What this means is that if you don't have enough coverage to pay the full replacement cost, then you will be penalized on every claim whether large or small. For this reason, you only want to carry full replacement cost if you are sure that you have enough coverage to avoid the penalty.