How ACV and RCV Affect Insurance Coverage After a Loss

When you are buying property damage insurance on a home or building, you will be given the choice of whether your policy covers the actual cash value or replacement cost value of your lost items. Unfortunately, failure to fully understand these terms often leaves owners with far less than the full cost of roof damage after a hailstorm. Attorney Bill Voss explains the difference between ACV and RCV, and explores how to get the best value for your property damage claim.

What Is Replacement Cost Value (RCV)?

Replacement cost value (RCV) coverage guarantees that a policyholder will receive the full amount necessary to replace covered damaged items with “like” kind or quality. For instance, if you totaled a small family car under an RCV policy, you should be given enough money to purchase a car of a similar make and model year—but you would not be given enough to purchase a high-end sports car.

RCV claims are some of the highest-paying claims, so they often have higher premiums on their policies. These claims also afford peace of mind to clients, especially since they provide compensation for the actual cost of an item rather than providing an adjusted amount based on the actual value of the lost item.

What Is Actual Cash Value (ACV)?

Actual cash value (ACV) policies typically have lower premiums than RCV policies, and for good reason: they provide less in compensation when a claim is made. The insurance term “actual cash value” is the amount that a lost item was actually worth, a result of subtracting any depreciation the item has sustained prior to loss from the cost of replacement.

Depreciation is key in ACV claims, because an item can lose thousands in value depending on the condition it was in before the loss. Insurers calculate depreciation using the age of the lost item and the amount of wear and tear it had suffered while in your possession. If your roof was ten years old and in poor condition, your insurer will likely not pay anywhere near the amount it will take to replace the entire roof.

Is There Any Way to Get a Better Payout for My Property Damage Claim?

Insurers often prefer paying ACV claims because they are inherently cheaper for the company and provide more “wiggle room” in depreciation value. Insurers have their own specific formulas for calculating the amount of depreciation, which is then subtracted from the replacement cost. When the policyholder finally receives a check for damages, he or she may be stunned to discover that relatively little of the funds it will take to repair or replace the roof will actually come from the insurance money.

However, there are a few ways policyholders can increase the value of their claims, including:

• Providing accurate paperwork. Business owners may attempt to guess at the age of their roofs rather than show proof of installation. Accurate age of damaged items is crucial to getting fair value.
   
• Showing proof of recent inspection. It is a good idea to undergo a complete building inspection every few years to maintain accurate records of the condition of your property. An insurance agent will have a harder time subtracting high depreciation costs if you have a report from a roofer that says the roof had only minimal wear and tear a year ago.
   
• Asking if depreciation may be recoverable. Some property insurance policies allow policyholders to be reimbursed for the depreciation on their lost items once repairs are complete. If a policy allows for recoverable depreciation, the insurer will issue one check for the ACV and send a second payment to cover depreciation once it has proof of replacement.
   
• Switching to an RCV policy. If you want to get the highest coverage possible before the next storm, you may wish to discuss buying an RCV policy for your business and carefully review the policy limits and exclusions with an insurance professional.

If you are having trouble collecting payment from an insurance company, fill out the form on this page today to contact the Voss Law Firm or order a free copy of our book, Commercial Property Owners Must Read This BEFORE Filing an Insurance Claim.