Replacement Cost vs. Actual Cash Value

One of the most important (and misunderstood) concepts in homeowners insurance.

Actual Cash Value (ACV)

Definition: The cost to replace an item, MINUS depreciation.

Example: Your 10-year-old roof costs $15,000 to replace. Depreciation (10 years @ 1.5%/year): 15% = $2,250. ACV Payout: $12,750. You pay out-of-pocket: $2,250.

Replacement Cost Value (RCV)

Definition: The full cost to replace an item, with NO depreciation.

Same Roof: Replacement cost: $15,000. RCV Payout: $15,000. You pay out-of-pocket: $0.

Which Should You Choose?

For Dwelling (Your Home's Structure): ALWAYS choose Replacement Cost. A home fire doesn't care about depreciation—you need full dollars to rebuild.

For Personal Property (Contents): Replacement Cost is better if you can afford the higher premium (usually 10-15% more). ACV is cheaper upfront but hurts when you file a claim.

Real Impact Example

A hail event damages your roof, HVAC, gutters, and skylights.

Under ACV: Total damage: $18,000. Depreciation at 15%: -$2,700. Payout: $15,300. Your cost: $2,700 out-of-pocket + deductible.

Under RCV: Total damage: $18,000. Depreciation: $0. Payout: $18,000 (minus deductible). Your cost: $0 out-of-pocket (aside from deductible).

Pro Tip

If you're financing a home, your lender likely requires RCV. But check your policy to be sure.

Questions to Ask Your Agent

Is my dwelling coverage Replacement Cost or ACV?
What's my depreciation schedule for roof claims?
Is my personal property coverage RCV or ACV?
Can I upgrade contents to RCV for an extra premium?

What Replacement Cost Actually Means (And Why It Matters)