A century-old building has hand-plastered walls and ornamental tin ceilings. A policy written on a functional replacement cost basis settles a covered loss by paying to:
Explanation
Functional replacement cost pays to restore the property with modern, readily available materials that do the same job, rather than duplicating obsolete or ornamental construction. It keeps the amount of insurance realistic for buildings whose faithful reproduction would cost far more than the building is worth. Reproducing the plaster and tin is straight replacement cost, and taking depreciation off is an actual cash value settlement, which is a different valuation basis.
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