Replacement cost coverage is an option in homeowner’s insurance that pays out the full cost to replace damaged or destroyed property with new items of similar kind and quality, without factoring in depreciation. This type of coverage ensures that, if you suffer a loss, you can replace your items at today's market prices, regardless of how old they were at the time of loss. This can be particularly beneficial in cases where the value of items has decreased over time due to wear and tear.

In contrast, actual cash value (ACV) coverage reimburses you based on the depreciated value of your property. This means you may not receive enough compensation to fully replace your items with new ones. Replacement cost coverage typically costs more in premiums than ACV, but it offers greater protection by covering the full cost of replacing your possessions after a covered event, such as fire or theft.