Question: What does “RCV” and “ACV” mean?
Answer: These are terms used in the insurance industry to represent how your property and/or belongings are replaced or repaired. Most insurance policies offer Replacement Cost Value or RCV coverage. RCV refers to what the cost is today of replacing the building materials or possessions with “like kind and quality” items or products. This is a typical insurance policy. Insurance companies will typically apply a “depreciation” to the value of the products on the repair side of your policy, and hold back that amount until the repairs are completed. ACV or Actual Cash Value coverage: This is a much more rare form of insurance coverage, and it often comes at a steep discount to an RCV plan. These plans, however are a risky proposition for property owners, because it applies UNRECOVERABLE depreciation to your claim. For example, let’s say you have an ACV policy, and your home is damaged by flooding, and the carpet requires replacement. If the age of the carpet is 10-15 years old, it’s reaching the end of its usable life. Let’s make the math easy: If the cost to replace this carpet is $5,000.00 and the usable life of the carpet is 15 years, and you installed it 10 years ago, it has approximately 30% of its usable life left. The insurance company deducts 70% of the replacement value to arrive at the “Actual Cash Value” of what the cost of your carpet is today. So instead of getting $5,000 to replace your carpet, you’re now only going to receive $1,500.00 to replace it today… which leaves you a pretty sizeable out-of-pocket expense when we’re working with you to replace it. So, as we always recommend, check with your agent or carrier regarding your coverage. It’s important to understand where your current limits and policy coverage’s are. You’ll be glad you did.