ANSWERS: 1
  • The amount it costs for an insurance company to replace an automobile at the current market price is the replacement cost. Replacement cost does not consider depreciation of the automobile due to age, mileage or condition.

    Policy Terms

    Replacement cost for an automobile is an option that can be chosen in an auto insurance policy. Replacement cost for an automobile is a term of the policy, which must be negotiated as part of the insurance contract.

    Replacement Cost vs. Actual Cash Value

    Replacement cost differs from the actual cash value of the automobile. Insurance companies also offer actual cash value policy terms for replacing an automobile, which will only pay what the automobile is actually worth after the amount of depreciation is determined.

    Collision Insurance

    Insurance companies offer replacement cost terms in collision insurance auto policies. The policy will pay to replace your automobile at the current market price if it is destroyed in a collision.

    Comprehensive Insurance

    Insurance companies offer replacement cost terms in comprehensive insurance auto policies. The policy will pay to replace your automobile at the current market price if it is destroyed in any way covered by the comprehensive policy, including storm damage and fire.

    Deductibles Apply

    Insurance companies will pay to replace your vehicle at current market prices if you have replacement cost terms, but deductibles will apply. Deductibles are the amount you have to pay from your own pocket, which is part of the terms of your policy.

    Source:

    CarsDirect.com: How Is the Actual Cash Value Determined?

    InvestorGuide.com: Car Insurance and the Different Types of Policies

    Edmunds.com: Auto Insurance Tips

    More Information:

    Insurance Information Institute

    National Association of Insurance Commissioners

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