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Actual Cash Value (ACV) v. Replacement Cost Value (RCV)

actual cash value vs replacement cost value

Property insurance claims are usually reimbursed using one of two calculations: Actual Cash Value (ACV) or Replacement Cost Value (RCV). Some policies even include elements of both. Understanding the difference between these types of policies can help you with planning for recovery in case you ever need to file a claim.

ACV is calculated by determining the property’s value “new” and subtracting depreciation. This is the case regardless of how worn or pristine the item was at the time it was damaged. Imagine you bought a TV 5 years ago for $2000. Today, that TV is worth $300. If you have ACV coverage, the insurance carrier will pay you $300 (what an old TV is worth). If you had RCV coverage, the carrier will pay what it costs to purchase a brand new TV of like kind and quality.

RCV is calculated based on the replacement cost of the property that was lost. If you had an RCV policy, the TV that was damaged or stolen in the above scenario would be fully replaced without any extra “out of pocket” for you, regardless of how old the item is. Even if your TV was 10-years-old when it was stolen, you’d be able to replace it with a new one. Monthly premiums for RCV policies tend to be slightly more expensive than ACV policies.

This same idea carries over to building coverage as well - say a tree damaged your roof, would you want money for a used roof or a new roof?

We would love to answer any questions that you might have. Contact Kovalev Insurance today and request a complimentary consultation to ensure your property is properly protected.

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