Replacement cost is the expense of replacing damaged property with a new equivalent, or restoring it on the valuation basis specified by the policy. Such coverage may avoid some depreciation deductions but usually carries conditions. Payment can depend on actual replacement, deadlines, and adequate sum insured.
A Nepalese factory should estimate the cost of equivalent machinery, including relevant delivery and installation expenses if covered. Replacement cost does not automatically include upgrades or a larger building. Compare this basis with indemnity and check whether underinsurance or sub-limits can still reduce the settlement.