Actual cash value (ACV) is based on the depreciated value of stolen, damaged or otherwise destroyed property. Replacement cash value (RCV) does not consider depreciation and instead covers the cost of a replacement based on today’s prices.
While actual cash value tends to be cheaper in terms of your insurance premium, it offers a much narrower reimbursem*nt once a claim is paid out. Replacement cash value is more expensive upfront, but guarantees to cover the cost of replacing a covered item in full.
ACV is the most standardized coverage type for property insurance. RCV is considered the more comprehensive variation.
Actual cash value works to reimburse you for lost, damaged or stolen property by appraising the item based on its replacement cost minus depreciation. So if your television is stolen and you need a replacement, your insurance company will factor in the item’s age and subtract any depreciated value from your payout amount.
Replacement cost insurance pays for covered items at current market value without adjusting for depreciation. In this case, if someone steals your television from your home, your insurance company will reimburse you for the retail value of what a comparable TV model costs today.
Keep in mind that your provider will still subtract any outstanding deductible from your payout and that your reimbursem*nt must comply with the coverage limits outlined in your policy.
To better understand what the full replacement is, it’s important to differentiate between dwelling coverage and personal property coverage. Both are part of a homeowners insurance policy. While dwelling coverage refers to the value of your home’s structure, personal property coverage includes the belongings and personal items inside of your home.
With dwelling coverage, the full replacement cost equals the total price to rebuild your property based on current construction, material and labor prices. For personal property coverage, the full replacement cost is the total value of your personal belongings and the price of replacements.
Depending on your insurer, you could negotiate the actual cash value of your items. Before negotiating, assess the damage independently, review your policy’s terms and collect sufficient evidence supporting your claim.
