Home Insurance Advice – Protecting Your Investment

What is the Difference Between ACV and RCV?Insurance - Actual Cash Value vs Replacement Cost

This is a type of question that people usually only think about once they have a monetary or significant loss. However, it is important to research these things before selecting home insurance coverage and to know what type of insurance policy you have along with the benefits for the homeowner or individual seeking coverage. ACV (Actual Cash Value) and RCV (Replacement Cost Value) are two different methods of determining the value of a covered loss.

This centers around the fact that homes, like almost everything in life, lose value over time. A roof wears out, flooring gets stained and scuffed, and paint needs an extra coat. Whether it’s something expected to last a long time like framing, or less time like an HVAC unit, every aspect of your home is expected to wear out eventually. And some policies factor the age and lifespan into the value of lost or damaged items when determining a settlement amount.

Actual cash value is defined as “The amount which it would cost to repair or replace covered property with material of like kind and quality, less allowance for physical deterioration and depreciation including obsolescence, and wear and tear.” This means that older and more deteriorated items will be settled at a lower amount than newer ones.

ACV policies are settled by starting with the replacement cost and then subtracting the deductible and depreciation. Below is an example:


Replace Composite Shingles, 3 Tab, 25 yr                           $  4,000

Depreciation (15 year old shingles – 50%)                          ($  2,000)

Actual Cash Value                                                                    $ 2,000

Deductible                                                                                  ($ 500)

Claims Payment                                                                        $ 1,500

Replacement Cost Value policies, however, also pay the amount of depreciation. In most cases, FMT will make an initial payment that is the ACV amount, but once they get verification that the work has been completed (usually by a Contractor’s Completion or a Certificate of Completion sent along with photos of the completed work), we release another payment for the amount of depreciation that was initially subtracted. This is called “recoverable depreciation.”

If you are not sure which type of policy you have, we recommend that you reach out to your local agent or call FMT Insurance at 1-800-824-9555.  At FMT, we have trained insurance professionals experienced in listening and providing the best insurance service to fit your specific need.  Don’t delay, call or contact us today!