Replacement cost vs actual cash value

Have you ever looked at your homeowners, condo, or renters policy and saw that your property, belongings, and/or roof is listed as being insured for Replacement Cost Value (RCV) or Actual Cost Value (ACV)?  Have you ever wondered what that means?

Replacement Cost (RCV) is the value to replace an item at today's cost. 
Actual Cash Value (ACV) is the value for a similar item at today's cost minus depreciation (replacement cost minus depreciation).

What does this mean?  Let's use an example most people have in their house - a couch.  Four years ago when you moved into your house, you purchased a new sectional for $2500.  Last month, your sectional couch was damaged in a covered claim.  

• If you have actual cash value coverage, the insurance company would pay what the value of the couch today (replacement cost minus depreciation).  In this example, they might determine that after 4 years use, your sectional is only valued at $1800.
• If you have Replacement Cost coverage, the insurance company will pay what it could cost to buy a similar couch today.  The sectional you purchased 4 years ago might now be $2600 so they would pay that amount. (Some insurance companies will give you the actual cash value of an item and require a receipt for the new item before paying you the remainder)

What does it mean by depreciation?  Over time, your home, contents, and/or roof may lose value due to factors such as age and wear and tear.  This loss in value is commonly known as depreciation.  

RCV and ACV also affects how your roof is insured too.  Some companies only offer RCV coverage for roofs if they were installed within the last 15 years, otherwise the roof is covered for ACV.  

Here are some important things you can do:

1. Look over your Homeowners, Condo, or Renter's Insurance policy to see what coverages are listed for your policy
2. On your Homeowners policy, make sure that we have the most recent roof year listed for your home
3. Take an inventory of your items in your home, and update annually.  It is recommended to take a video of each room, including in your closets and cupboards.  This will help in the event of a house claim.

If you have any questions regarding the coverage on your policy, please contact your agent today!