What type of policy pays to replace a damaged item at current market prices without accounting for depreciation?

The type of policy that pays to replace a damaged item at current market prices without accounting for depreciation is known as Replacement Cost. This type of coverage is specifically designed to provide the policyholder with sufficient funds to purchase a new item of similar kind and quality, regardless of the item's original cost or depreciation over time.

This means that if an item is damaged or destroyed, the insurance company will reimburse the insured for the cost of a new item, rather than subtracting any depreciation that might have affected the value of the old item. This is particularly beneficial for the insured because it ensures that they can replace their lost or damaged items with new ones, which can be vital in maintaining their lifestyle or business operations.

In contrast, Actual Cash Value takes into account depreciation, providing only the current value of the item as it stands just before the loss. Stated Value and Valued Policies also differ in that they may establish a predetermined value or focus on specific items, rather than focusing on the replacement costs at market value.