What does Replacement Cost (RC) mean in insurance?

Replacement Cost (RC) in insurance refers specifically to the cost required to replace or repair damaged property with materials of similar kind and quality, without regard for any depreciation that may have occurred. This means that if a policyholder experiences a loss, such as damage to their home or personal belongings, the insurance will cover the expenses to replace those lost or damaged items at current market prices, ensuring that they can restore their property to its original state.

This approach is beneficial to policyholders because it provides the full value needed to recover from a loss without penalizing them for the wear and tear that may have occurred over time. In contrast, other options like considering depreciation or past market values do not align with the purpose of Replacement Cost coverage, which seeks to provide a straightforward and fair means of compensation for losses incurred.