Which method of valuation includes replacement cost?

The method of valuation that includes replacement cost is known as a valued policy. This approach is typically used in insurance contexts where the policy specifies that a property will be insured for a certain amount, regardless of its cash value or any depreciation. In the case of a claim, the insurer will pay up to the policy limits to cover the cost to replace or repair the property, without considering depreciation. This is particularly common in certain types of property insurance, where maintaining the full value of the property at replacement cost is essential for the policyholder.

Replacement cost reflects the amount it would take to replace the insured property with a similar new item in the current market, disregarding depreciation. This ensures that the insured is adequately compensated in the event of a covered loss, allowing for the replacement of the property to its pre-loss condition.

In contrast, actual cash value considers depreciation, meaning it reflects the current market value of the item after accounting for wear and tear. Depreciable value is not a standard method of valuation used in insurances; it describes a method of accounting or valuation relating to asset depreciation rather than a direct insurance payout method. Market value pertains to what the property would sell for in the current marketplace, which may not necessarily align with replacement costs.