What’s The Difference Between RCV and ACV?
When you’re purchasing homeowner’s insurance, there are two types of policies: RCV and ACV. It’s VERY important you know the difference between the two.
RCV stands for Replacement Cost Value. This type of policy pays you to repair or replace your property with similar kind and quality.
ACV stands for Actual Cash Value. This type of policy pays you the replacement cost like RCV, MINUS the depreciated value.
Let’s say you have a $1,000 couch, and it needs to be replaced after a fire.
If you have an ACV policy, the insurance company says: “Okay, it’s going to cost $1,000 to replace this couch. This couch has an estimated life expectancy of 10 years, and the receipt shows you bought it 4 years ago. That means this couch has depreciated 40% of it’s original $1,000 value. Here’s a acheck for $600, which is the current value of the couch.”
This means you’ll need to come up with the other $400 if you want to buy a couch that cost as much as yours did when you originally bought it.
If you have an RCV policy, this plays out a little differently.
With an RCV policy, your insurance company says: “Okay, it’s going to cost $1,000 to replace this couch. This couch has an estimated life expectancy of 10 years, and the receipt shows you bought it 4 years ago. That means this couch has depreciated 40% of it’s original $1,000 value. Here’s a check for $600, which is the current value of the couch. Once you buy a new couch, send us a copy of the receipt and we’ll send you the remaining $400.”
This means you can get the same type of couch as the one you had – this one will even be brand new instead of 4 years old – and the insurance company will reimburse you for the FULL amount, not just the ACV amount.
This is especially important when it comes to REBUILDING your home, not just replacing the contents inside of it. Having an ACV policy might cause some issues if you ever have a fire, basement flood, or other source of damage to your home.
Not sure if you have an ACV or RCV policy? Talk to your insurance agent. RCV policies typically cost a bit more, but it might be worth it to have complete peace of mind that you’ll be covered if something happens.