Reproduction cost is the cost incurred to replace property that has been damaged, destroyed, or stolen with identical property. Typically a small deduction is made to account for depreciation. Insurance companies may provide an option for insuring property at the reproduction cost. It is important to read the terms in an insurance contract with care to determine what kind of coverage is being provided. If a particular type of coverage is desired, it should be discussed with an insurance agent who can provide information about available policies and their costs.
When a piece of property is insured for the reproduction cost, the insurance company will send out an appraiser to determine the value of the property. The appraiser must consider the costs involved in replacing something with an identical piece of property made with the same materials, workmanship, and specifications. At the same time, the appraiser considers the effects of depreciation on the property.
The appraiser arrives at a value that is recorded as the reproduction cost of the property. The insured party can ask to see the appraisal and there is an option to appeal if the appraisal is not believed to be an accurate reflection of the reproduction cost. Some things that could skew the cost include the local availability of materials or the use of unusual materials in a construction project.
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In the event that something happens to the property, the insurance company will investigate to confirm that the situation is covered and to determine what kind of coverage is appropriate. For example, if a house is damaged in a fire, the insurance company may opt to pay for repairs only if the house remains structurally sound. If the fire destroys the house or damages it so substantially that the repair costs would be very high, the insurance company will pay out the reproduction cost, allowing the homeowner to rebuild with an identical structure.
A related term is “replacement cost.” However, replacement cost only allows for the replacement of the property with something of like value and kind. It does not pay for replacement with an identical piece of property. The difference between these two terms can be important, especially for people insuring rare or unusual items. An insurance agent can provide advice about what kind of coverage would be most appropriate for a given situation and offer quotes on insurance policies that will meet coverage needs.