Replacement cost
Replacement cost is the cost of replacing a damaged or destroyed item with a new equivalent of like kind and quality, without any deduction for depreciation. A replacement cost policy pays the full cost of a new replacement; an actual cash value (ACV) policy deducts depreciation from the settlement. Also called new-for-old cover in the UK.
Replacement cost vs actual cash value
Most standard UK home contents policies are written on a replacement cost (new-for-old) basis. US homeowners policies vary — check your declarations page. Replacement cost policies cost more in premium than ACV policies, but provide significantly better protection for items that depreciate quickly (electronics, appliances, clothing).
For buildings, replacement cost refers to the cost of rebuilding your home from scratch — this is different from its market value. See our article on home rebuild costs and under-insurance for why this figure needs reviewing regularly. For a comparison with ACV, see the actual cash value glossary entry.