Actual Cash Value vs Replacement Cost: The Single Setting That Decides Your Claim Payout

Actual cash value (ACV) and replacement cost value (RCV) are the two ways a homeowners or commercial property policy can pay a claim. The difference can be thousands of dollars.

What each one pays

Actual cash value pays what the damaged item was worth at the time of the loss. A ten-year-old roof, a five-year-old refrigerator, or a worn carpet are all paid at their depreciated value. The older the item, the smaller the payout.

Replacement cost value pays what it costs to replace the item with a comparable new one. A ten-year-old roof is replaced with a new roof, no depreciation deducted.

The premium vs. claim trade-off

The premium difference is usually small. Typically 5 to 15 percent of the homeowners premium. The claim difference can be 50 to 70 percent for older roofs, HVAC systems, and major appliances.

The personal-property trap

Most standard homeowners policies include replacement cost on the dwelling. The trap is in personal property. Many policies default to ACV on contents unless you specifically request RCV.

What to check on your declarations page

• Dwelling: should say replacement cost or RC.
• Personal property: should also say replacement cost.
• Roof: some carriers carve out roofs to ACV after a certain age. Look for an ACV roof endorsement or roof age schedule.

Auto policies are different. Auto follows ACV by default. You cannot generally get RCV on a vehicle through a standard auto policy.