Home Insurance: The Difference between Replacement Cost and Actual Cash Value.

The difference between replacement cost value (RCV) and actual cash value (ACV) is one of the most commonly discussed (and misunderstood) issues in the insurance industry. Knowing these differences can be very helpful in deciding what coverage would be best for you.

What is Replacement Cost Value?

Replacement cost value is what it would cost to rebuild or replace your home with the exact same materials at today’s prices without deduction for depreciation.  Please note that RCV does not take into account the appraised value of your home.

The RCV is determined through a replacement cost estimator that takes different factors into consideration to generate the replacement cost of your home. Insurance companies use industry trends along with historical construction cost data for their value estimations.

Some of these factors include:

  • Square footage
  • Framing type
  • Type of roof
  • Construction material
  • Style of Construction

What is Actual Cash Value?

Actual cash value is the cost to rebuild your home at the time of loss minus depreciation. Depreciation is the decrease in value over time caused by the age of the structure along with wear and tear on the home.

If you were to have a claim, and you had ACV coverage, an adjuster’s final value on your claim will be determined by the age of the dwelling and other factors such as wear and tear.  Your claim settlement will be a depreciated amount minus the deductible. This also applies to partial claims and not total losses. For example:

A strong storm blows in and you have damage to half your roof that will cost $5,000 to repair. Since your home is on ACV and your roof is 20 years old, then you may only receive $3,000 to repair the roof instead of $5,000. That part of the roof is not worth $5,000 since it is 20 years old!!! RCV bridges the gap between what the roof is worth vs what it will cost to replace it.

Most people prefer RCV over ACV simply because replacement cost value provides you with a payment equal to what it would cost to replace the home as it was at the time of loss. Actual cash value will compensate you for the loss but the value will be depreciated and may not be enough to return your home to the way it was before the loss.

Speak to one of our personal lines agents at Joiner Insurance to learn more!


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