What type of policy should a property owner purchase to avoid depreciation deductions after a loss?

A replacement cost policy is designed to reimburse the policyholder for the full cost of repairing or replacing damaged property without factoring in depreciation. This means that after a loss, the insured would receive the amount necessary to replace the damaged property with new materials of similar kind and quality, regardless of the property's current market value or age.

In contrast, an actual cash value policy would only pay the replacement cost minus depreciation, which could result in a significantly lower payout in the event of a loss. Market value considers the price at which the property could be sold in the current market, which may not reflect the actual repair or replacement cost. A stated amount policy specifies a predetermined limit of coverage but may still lead to depreciation deductions if the limit is lower than the actual recovery cost needed after a loss.

By choosing a replacement cost policy, property owners can ensure they are fully compensated for their losses without the financial impact of depreciation deductions.