Homeowners FAQs

What is the difference between replacement cost and actual cash value?

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Quick answer: Replacement cost pays what it costs to rebuild or replace your property with new materials today.

The difference is depreciation. Replacement cost value, or RCV, pays what it actually costs to replace damaged property today, while actual cash value, or ACV, pays that amount minus depreciation for age and wear. RCV puts more money in your pocket after a loss, which is why it is the stronger option.

Depreciation is the loss in value an item experiences as it gets older and is used. A ten-year-old roof, a five-year-old sofa, and a worn appliance are all worth less than brand-new versions. ACV accounts for that drop, so the insurer subtracts it from your payout. RCV ignores depreciation and pays the full current cost to buy or rebuild the equivalent item new.

RCV and ACV part ways over depreciation:

  • Replacement cost (RCV) pays to replace the item with a new one of similar kind and quality, with no deduction for age.
  • Actual cash value (ACV) pays the depreciated value, which is the replacement cost reduced by how old and worn the item was.

For example, suppose a kitchen fire destroys a refrigerator you bought eight years ago for $1,500. A new comparable model now costs $1,800. On an RCV policy, you receive $1,800 to buy the new fridge, less your deductible. On an ACV policy, the insurer applies depreciation and might pay only $700, leaving you to cover the rest out of pocket.

That same gap applies to your roof, your home’s structure, and your belongings, so it can add up to thousands of dollars after a major claim. Roofs are where this shows up most often in Georgia, since wind and hail damage is common and an older roof loses a lot of value to depreciation under an ACV settlement. Many homeowners do not realize their roof is rated on an ACV basis until a claim comes in far lower than expected.

Replacement cost usually costs a little more in premium, but for most homeowners the added protection is well worth it. You can read a deeper explanation on our ACV vs RCV guide and on our actual cash value page. Want to know which valuation your homeowners policy uses? Start a free coverage review at /coverage-review/ and we will confirm it for you.