Replacement Cost vs. Actual Cash Value: Which Policy Do You Have?
Read more → for age and wear.
What is Replacement Cost Value?
Replacement Cost Value (RCV) means your insurance will pay to replace damaged property with new materials of like kind and qualityLike-Kind-and-Quality Replacement in Insurance ClaimsYour insurance policy requires that damaged materials be replaced with materials of 'like kind and quality.' This means if you have solid hardwood ...
Read more → at current market prices. If your 10-year-old kitchen cabinets are destroyed, RCV pays for new cabinets of the same quality at today's prices, without deducting for the age of the original cabinets. This is the more comprehensive and more common type of homeowner policy.
What is Actual Cash Value?
Actual Cash Value (ACV) is the replacement cost minus depreciation for age and condition. Using the same cabinet example, if new matching cabinets cost $15,000 but your 10-year-old cabinets have depreciated 30%, your ACV payment would be $10,500. You would have to pay the remaining $4,500 out of pocket to get the same quality replacement.
ACV policies have lower premiums but provide significantly less coverage.
How to check your policy type
Look at your policy declarations pageHow to Read Your Insurance Declarations PageYour insurance declarations page is a one or two page summary that contains the most important details of your policy. Knowing how to read it befor...
Read more →, which is the summary sheet that lists your coverages and limits. It will specify whether your dwelling coverage is RCV or ACV. Some policies have RCV for the dwelling but ACV for personal property (contents).
Read carefully because the coverage type may be different for different categories. If you are not sure, call your insurance agent and ask directly.
How the settlement process differs
With an RCV policy, the insurer typically pays in two stages. First, they issue an ACV payment (replacement cost minus depreciation). After you complete repairs and submit receipts, they release the depreciation holdback, bringing the total up to the full replacement cost.
With an ACV policy, the initial payment is all you get. There is no second payment because there is no holdback to recover.
What to do
Review your declarations page and confirm your policy type before filing a claim. If you have an RCV policy, make sure you understand the holdback process and complete repairs within the required timeframe to recover the depreciation. If you have an ACV policy, understand that your settlement will be less than the actual cost of repairs.
Consider switching to an RCV policy at your next renewal if you currently have ACV.
See how this applies to your property
Upload photos of your damage and get a detailed analysis showing exactly where your estimate may fall short.