Replacement cost (RCV) vs Actual cash value (ACV)

The difference between replacement cost and cash value coverage on your policy is very simple, replacement cost means you will receive an amount equal to what it would cost to replace a lost or damaged item vs cash value which means you will receive the value of the lost item at the time it was lost or damaged.

With your personal items or contents of your home that may be pretty simple to understand and its clear that most items will be worth less under ACV then under RCV. When it comes to your home its a bit more complicated. Your home’s components have expected lifespans, your roof for example may be expected to last 25 years your AC system 10 years and your plumbing maybe 50 Years. When your insurance company┬ádetermines payment they will look at the age and lifespan of your home’s components. so if your roof is 26 years old and in perfect shape because you maintained it well, its ACV value is zero.

It is important to understand that while ACV policies may be sold at lower premiums they do not provide the same coverage that RCV policies provide. If you have a new home you may still be ok with ACV but as it ages you will not have sufficient coverage in case of a loss.

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