Functional Replacement Cost

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by Christopher J. Boggs, CPCU, ARM, ALCM

Functional replacement cost values property at the cost necessary to replace damaged or destroyed property with new property of unlike kind and quality. The property performs the same general function allowing the insured to accomplish their business objectives. Property replaced using functionally equivalent materials and products are less expensive and often require a shorter replacement schedule. This valuation option may be appropriate:
• When the insured cannot rebuild the same square footage, usually due to the application of building codes, and a smaller building will be built in its place;
• When the insured does not want to rebuild the same square footage;
• When lower cost building materials can or should be used (i.e. masonry/non-combustible vs. fire resistive); or
• If the insured does not need all the functions available on a particular piece of machinery or equipment.

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  • November 13, 2009 at 3:03 pm
    ben says:

    i’ve often had difficulty explaining how FRC works on a “substantial, partial loss” to a structure…any words of wisdom out there??

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