One of the most misunderstood insurance coverage acronyms are ACV and RCV as well as indemnity and Depreciation. Policy holders do not understand or pay attention to Actual Cash Value (ACV), Replacement Cost Value (RCV), indemnity and Depreciation so we are going to break it down for you so you “learn it, know it and live it”.
What is ACV? AKA Actual Cash Value
Reality is, you are not alone, “actual cash value” is something that is not easy to understand. As a Public Adjuster who also happens to have a law degree, ACV is often defined as fair market value. Insurance companies have deep, deep pockets and you can find court documents using the following, “the cost to replace with new property of like kind and quality, less depreciation.”
What is RCV? AKA Replacement Cost Value
Replacement cost value in homeowner insurance policies typically states, the cost to replace the damaged property with the same kind and quality WITHOUT the subtraction of depreciation. The WITHOUT is an extremely important differentiator and means your property will be brought back to pre-loss conditions at today’s market value. As you know, the cost of construction materials is much higher following the pandemic and yet another reason to hire a public adjuster to ensure you maximize your claim.
What is Depreciation?
Depreciation is the decrease in value from all causes like age, wear and tear. Roofing is an ideal example where depreciation comes into play, a tree falls on your house and when the insurance adjuster arrives on the scene (if they arrive on the scene)…they will immediately look to see how old and damaged your roof was prior to the tree falling.
What is Indemnity?
This is the foundation of homeowners insurance and pretty simple. It goes without saying, having homeowners insurance protects you when disaster strikes. Indemnity is the physical payment to replace/repair the damages from the insurance company to you and is never more than the actual overall loss. In summary, your property should be repaired to exactly how it appeared 5 seconds before the damages occurred and of course, not something the insurer walks away with extra cash in your hands.
How do RCV, ACV and Depreciation Work?
Here is an example of a Homeowners Insurance clause.
“State Farm will pay the cost to repair or replace with similar construction and for the same use on the premises, subject to the following: until actual repair or replacement is complete, State Farm will pay only the actual cash value at the time of the loss of the damaged property.”
In the example we used above with the tree, how will RCV and ACV work? If you have an RCV policy and your roof is 15 years old, your insurance company is required to pay for the damages to your roof. They will initially give you a check for the Actual Cash Value (ACV). Once a contractor completes the work, you will then receive another check for the full Replacement Cost Value (RCV).
How to calculate Actual Cash Value?
Actual Cash Value is the Replacement Cost less Depreciation.
Most Important Lesson of RCV versus ACV?
Hire an experienced public insurance adjuster to ensure you maximize your claim. Since 1949, thousands of people in Connecticut have called on Biller Associates Public Adjusters to handle their claim. If you want experience, knowledge, the latest technology and hard work on your side, call Biller Associates today!!
