Replacement Cost Less Physical Depreciation And Obsolescence

What Does Replacement Cost Less Physical Depreciation And Obsolescence Mean?

Replacement cost, minus physical depreciation and obsolescence, is the amount an insurance company will pay for an insured property after accounting for its reduced value due to wear and tear or the fact that it has been superseded by newer technology in the market.

Insuranceopedia Explains Replacement Cost Less Physical Depreciation And Obsolescence

The cost to replace a loss may not match the original purchase price of the property. This is because the insurance company may factor in the property’s functionality in relation to its expected lifespan, as well as its physical condition at the time of the claim. Additionally, they may consider whether new technology available in the market has made the property obsolete.

These calculations particularly impact property that is dependent on evolving technology.