
ACV VS RCV. Which is better?
Share
Most homeowners are unsure of which policy they have until they go to make a claim. It is important to know which one you have as it directly pertains to how much you may have to pay out of pocket in the event a claim needs to be filed for losses. The difference of the two policies can result in thousands of dollars out-of-pocket. The main difference between Actual Cash Value (ACV) and Replacement Cost Value (RCV) insurance policies is how they calculate the payout for damaged or lost property.
Actual Cash Value (ACV) Policy
• Pays out the depreciated value of the damaged property.
• Factors in age, wear and tear, and market value at the time of loss.
• Typically results in a lower payout because it does not cover the full cost to replace the item.
• Example: If your roof is 15 years old and needs replacement after a storm, an ACV policy would pay the current value of the roof (original cost minus depreciation), not the cost to install a brand-new one.
Replacement Cost Value (RCV) Policy
• Pays out the full cost to replace the damaged property with a new one of similar quality.
• Does not deduct depreciation.
• Typically results in a higher payout because it covers the actual cost of replacement.
• Example: If your roof is damaged, an RCV policy would pay for the full replacement cost of a new roof, regardless of its age.
When you have an RCV policy, the insurance will typically will pay out the ACV amount first, withholding back the depreciation until proof is shown of the repairs being completed to the property. Once the repairs have been completed and you submit proof to your desk adjuster they will release the depreciation to you in a second check, usually mailed to you.
Key Takeaways
• ACV typically has lower premiums but offers less coverage. It’s often for those looking to save on premiums , however you must be willing to cover part of the replacement cost out-of-pocket.
• RCV premiums are typically higher but provide better financial protection. It’s ideal for homeowners who want to ensure they can fully replace their property after a disaster.