It is important to understand the difference between ACV (actual cash value) and RCV (replacement cost value) in your insurance policy. You do not want to find out the difference after filing a claim, so be sure to review your insurance policy and find out more about the differences below.
To begin, ACV does not refer to the cost you paid for the item, instead, it is the current value of the item in its current state. This is important for you to know as the policyholder because it will affect the amount that you will receive from your insurance company during a claim. For example, if a new roof cost the homeowner $20,000 and was expected to last twenty years, but is damaged ten years later, you will likely only receive half of its value. Typically, this ACV amount is determined by taking the current value of the item and subtracting that amount from the replacement cost.
On the other hand, we have RCV. This value is 100% of the cost to replace the damaged property with similar materials. In the midst of damage, this coverage clearly provides more to the policyholder. For this reason, the cost of this kind of coverage is usually 10-25% more expensive but, it does provide you with better coverage and peace of mind. With RCV coverage, the total cost of your roof would be replaced, even if it was only ten years old and expected to last for twenty.
How to Determine Which Is Best for You
All insurance policies are different, so knowing what yours includes is crucial. Sometimes, policies will provide RCV for damage to the structure of your home, but ACV for contents damaged inside your home. If your home is older, you may only have ACV throughout your entire policy.
Often, homeowners will choose ACV coverage in their policy as it is the cheaper option. But these policyholders may end up regretting that decision when damage occurs. At the end of the day, the most important thing is knowing what is included and covered in your particular policy and knowing your homes likelihood for potential damage.
Have questions about your property insurance claim? Feel free to contact Stark Loss for more information about how a Public Adjuster can help.