Which loss settlement provides new for old?

• A. Replacement cost
• B. Actual cash value
• C. Functional replacement
• D. Stated amount

Answer: (A)

Replacement cost loss settlement is the method that pays to replace damaged property with new items of like kind and quality, without deducting depreciation. That means the insurer aims to restore you to a “new for old” condition, up to the policy limits and subject to any terms or coinsurance requirements. This is why it’s the best fit for “new for old.”

Actual cash value, in contrast, subtracts depreciation from the replacement cost, so you’re compensated for the item’s current value rather than the cost to replace it with a new one. Functional replacement pays for a functionally equivalent item, which may be older or different in form than what was lost. Stated amount is a fixed value agreed upon in advance, not tied to the replacement cost.