Mountain Valley Roofing Blog

Homeowner's Insurance Policy ACV or RCV?

We're 3 days into April and as the saying goes "April showers bring...roof leaks?"

As spring storm season begins, it's important to know what type of homeowner's insurance coverage you have.                      

When it comes to homeowner's insurance, there are two primary types of coverage for assessing the value of damage: Replacement Cost Value (RCV) and Actual Cash Value (ACV). Let’s break down the differences:

1. Actual Cash Value (ACV):

• ACV is generally more affordable in terms of upfront premiums.
• After a covered loss (such as fire, theft, or weather event), ACV pays out to replace items based on their pre-damage depreciated value.
• For example, if you bought a couch 10 years ago for $3,000, its current value after depreciation might be $1,250. If the couch is destroyed, an ACV policy would reimburse you up to $1,250, leaving you with potential out-of-pocket expenses to replace it with a similar new model.

2. Replacement Cost Value (RCV):

• RCV involves higher premiums but offers more comprehensive coverage.
• It calculates how much it would cost to replace an item with a new one at current market prices.
• For instance, if your roof is damaged by a hailstorm, RCV would cover the complete replacement of a new roof, regardless of how long ago it was installed.

In summary:

• ACV pays based on depreciated value, while RCV pays to replace items/building materials with new ones.
• While it may seem like a good idea to go with the cheaper ACV policy, this is only beneficial if you will have the cash on hand to cover the out-of-pocket depreciation costs on large claims, such as roof replacements.

If you're unsure which type of coverage you have, reach out to your insurance agent and request a copy of your policy documents.