Replacement Cost (RCV)

Replacement cost is a claims payment standard that gives you enough money to buy or rebuild whatever was lost with a brand-new equivalent -- without any deduction for age or wear. It is the alternative to actual cash value (ACV), which subtracts depreciation before writing your check. Replacement cost coverage costs more in premium, but it is the only standard that actually makes you financially whole after a real loss.

Here is why the difference matters. Suppose a kitchen fire destroys your ten-year-old refrigerator. That appliance cost $1,400 new and now has an estimated remaining useful life of roughly half. Under an ACV policy, the adjuster depreciates it 50 percent and pays you $700. A new comparable refrigerator today costs $1,600 because appliance prices have risen. You are $900 short before you even begin. Under a replacement cost policy, the adjuster pays what a new comparable refrigerator actually costs today -- $1,600 minus your deductible. You can walk into a store and replace it without writing a personal check to cover the gap.

On homes, the gap is even larger. A 15-year-old roof on an ACV policy might be depreciated 60 to 70 percent. A $25,000 roof replacement claim pays $7,500 to $10,000 after depreciation. Under replacement cost, the same claim pays close to the full $25,000 (minus deductible). The premium difference between ACV and replacement cost on a typical Georgia homeowners policy is $150 to $400 per year -- far less than the out-of-pocket gap on any significant roof or structural claim.

One important wrinkle: most replacement cost policies pay ACV first, then release the depreciation holdback once repairs are actually completed and documented. This is called the recoverable depreciation provision. If you receive a check, do not assume you are done -- submit your contractor invoices to collect the remainder. Skipping this step means leaving money on the table that you already paid premium to access.