Insurance Policy Method :

According to this method, an Insurance policy is taken for the amount of the asset to be replaced. The amount of the policy is such
that it is sufficient to replace the asset when it is worn out. A sum equal to the amount of depreciation is paid as premium every year. The amount goes on accumulating at a certain rate of interest and is received on maturity. The amount so received is used for the purchase of new asset, replacing the old one.