Replacement Cost

Learn what replacement cost means in Canadian home insurance, how it compares to cash value, and why it ensures full rebuilding or repair after a loss.

Replacement Cost

May 22, 2025


What is Replacement Cost?

Replacement cost is the amount it would take to rebuild or replace damaged property using materials of similar kind and quality, without deducting for depreciation.

Why Replacement Cost Matters in Real Estate

In Canadian real estate, replacement cost is a key concept in property insurance. It determines the payout a homeowner receives after a covered loss.


Replacement cost differs from:
  • Actual Cash Value (ACV): which subtracts depreciation
  • Market Value: which may include land and location premiums


Policies with replacement cost ensure full rebuilding or repair using comparable materials. It applies to both home structures and personal belongings.


Understanding replacement cost helps homeowners ensure they are adequately insured and can recover fully from a loss without out-of-pocket expenses for age or wear.

Example of Replacement Cost in Action

A fire destroys a homeowner’s kitchen. Their replacement cost policy covers the full cost to rebuild it with modern equivalents, regardless of the kitchen’s age.

Key Takeaways

  • Pays to replace damaged property without depreciation.
  • Used in most standard home insurance policies.
  • Ensures full recovery after a loss.
  • Applies to buildings and belongings.
  • Key factor in selecting coverage.

Related Terms

Additional Terms

Public Realm Improvements

Public realm improvements are enhancements to public spaces such as sidewalks, parks, plazas, and streetscapes, often funded or contributed by. more

Mortgagee in Possession

A mortgagee in possession is a lender who takes control of a property after borrower default, but before foreclosure or power of sale. The lender. more

Lease Surrender Agreement

A lease surrender agreement is a negotiated contract between a landlord and tenant that ends a lease before its scheduled expiration. Terms may. more

Green Infrastructure

Green infrastructure refers to natural or engineered systems that manage stormwater, reduce heat, and improve sustainability in developments.. more

Escrow Holdback

An escrow holdback is a portion of funds withheld at closing and held in escrow until specific conditions are met, such as completion of repairs,. more

Underused Housing Tax

The Underused Housing Tax (UHT) is a federal annual 1% tax on the value of vacant or underused residential property owned by non-resident,. more

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