The term replacement cost or the replacement value refers to the amount that an entity must pay to replace the current asset, in accordance with its current value.
In the insurance industry, "replacement cost" or "replacement cost value" is one of several methods for determining the value of an insured item. Replacement cost is the actual cost of replacing a good or structure in its pre-vanishing condition. This may not be the "market value" of the item, and is usually distinguished from the actual "cash value" payment that includes a reduction for depreciation. For an insurance policy for property insurance, a contractual requirement that the lost asset must be completely repaired or replaced before replacement costs are payable is common. This prevents overinsurance, which contributes to burning and insurance fraud. The replacement cost policy emerged in the mid-20th century; before concerns about overinsurance limited their availability.
If insurance operators honestly determine the replacement cost, it becomes a "win-win" for both for operators and customers. However, when the determination of the replacement cost is made by the operator (and, possibly, the third party expert) that exceeds the actual reimbursement cost, the customer is likely to pay for the insurance more than necessary. To the extent that the carrier consciously or carelessly sells excessive (ie unnecessary) insurance, such practices may constitute consumer fraud.
The replacement cost coverage is designed so that policyholders do not need to spend more money to get similar new items and that insurance companies do not pay for intangibles. For example: when the television is covered by a replacement cost value policy, similar television costs that can be purchased today determine the amount of compensation for the item. Such a policy is more expensive than the Actual Cash Value policy, in which the policyholder will not be compensated for the depreciation of the destroyed goods. The total amount paid by an insurance company over a claim may also involve other factors such as co-insurance or deductibles. One of the pioneers of the replacement cost method was the Dutch professor in Business Economics ThÃÆ' Â © odore Limperg.
Video Replacement value
Vendor
Estimated purchases of Insurers at replacement cost. The company's main estimates include its subsidiaries CoreLogic, Marshall Swift-Boeckh, Verisk Analytics PropertyProfile, Bluebook International, and E2Value. Consumer-focused tools include AccuCoverage and Home Smart Reports.
Maps Replacement value
Home insurance in the United States
If inadequate coverage is purchased to rebuild the house, the insured may have to pay a large uninsured fee from their own pocket. In 2013, a survey found that about 60% of homes have an estimated replacement cost that is too low with an estimated 17 percent. In some cases, estimates may be too low due to "demand wave" after a disaster.
Historically, consumers could purchase "coverage reimbursement" coverage that ensured sufficient limits if forecasts were too low, but this became "almost extinct" after several California disasters including Oakland storm 1991, Laguna Beach fire, and the 1994 Northridge earthquake.
Responsibility under insurance
Although insurance is decided at the state level, most states follow similar practices. In California and Texas, the insured is responsible for determining the right amount of insurance. However, one survey found that about half of consumers believe it is the responsibility of the insurance company, and consumers can come to this conclusion through the process of insurance companies, which according to legal experts create a "reasonable expectation" of coverage, which is the doctrine of controversial insurance law which are adopted in certain states.
In California, the 2007 case on this issue, Everett vs. State Farm General Insurance Company, provoked a failed request by the California Insurance Department and the non-profit insurance policyfor United to terminate the case.
Related Terms
- The actual cash value
- Holding profit
References
Source of the article : Wikipedia
0 Comments