Replacement Cost Less Physical Depreciation and Obsolescence

Definition - What does Replacement Cost Less Physical Depreciation and Obsolescence mean?

Replacement cost less physical depreciation and obsolescence is the amount that an insurance company will pay for an insured property after it considers the diminished value because of wear and tear or because new technology has replaced it in the market.

Insuranceopedia explains Replacement Cost Less Physical Depreciation and Obsolescence

The amount it takes to replace a loss might not be the same amount the property cost at the time of purchase. This is because the insurance company might consider the functionality of the property with regards to its expected lifespan. It might also consider the physical state of the property at the time that the policyholder makes a claim. Moreover, it can consider whether new technology available in the market has rendered the property obsolete.

These calculations especially affect property that is based on changing technology.

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