How is replacement cost defined?

Replacement cost is defined as the amount needed to replace property at its current cost without deducting for depreciation. This means that in the event of a loss, the insurance policy would cover the expense to replace the damaged or destroyed item with a new one of similar kind and quality, ensuring that the insured would not suffer financial loss due to depreciation or the aged value of the property.

This definition emphasizes that policyholders will receive an amount that reflects the actual cost to replace their property today, which can be significantly higher than the original purchase price. By providing coverage based on current replacement costs, it helps ensure that insured individuals can adequately restore or rebuild their property.

The other options refer to different forms of valuation or coverage types. Total loss payments represent a different aspect of insurance benefits, while market value pertains to what the property could sell for and does account for depreciation. Lastly, the option that includes deducting for physical deterioration and depreciation depicts actual cash value rather than replacement cost. Thus, these distinctions highlight why the definition provided as the correct answer focuses on new property without depreciation considerations.