Replacement cost value refers to how much your insurance company will pay if you experience a covered loss. If you buy a replacement cost policy, your insurer pays to repair or replace your property with items of similar quality and kind, based on their value in today’s market. For instance, if your home burns to the ground and it was valued at $450,000 when you bought your policy, they would pay up to that amount to restore it. As a result, when you buy a policy, it is very important you obtain an accurate valuation. Otherwise, you won’t receive adequate compensation.