What are the Differences Between ACV RCV Policy?

When deciding you get an insurance policy, their are really two choices as it relates to your coverage. Hence, knowing the differences between ACV RCV Policy will help you make the best decision.

RCV (Replacement Cash Value)

RCV is what it costs to repair or replace the damaged item with something of similar kind and quality, without the deduction for depreciation.

ACV (Actual Cash Value)

ACV is what it costs to repair or replace the damaged item with something of similar kind and quality, less the amount of the depreciation.

A Brief Understanding of ACV and RCV Insurance Policies

A long time ago, RCV policies were the norm, but then ACV policies started to emerge. There are two theories as to why this happened. 1.) Certain areas where storms or hail were frequent made sense to offer an ACV policy to save money on your premiums because there wouldn’t be a lot of depreciation for each replacement. 2.) Insurance companies started facing more competition and wanting to stay competitive they offered ACV policies that offered cheaper monthly premiums for homeowners who wanted to trim monthly expenses.

For that reason, we now have both options for insurance claim policies so…which one should you choose?

As Omaha Roofing Contractors that have worked alongside homeowners in both scenarios, we tend to favor the RCV policy and here’s why:

Cost of Family A’s roof 5 years ago: $10,000              Cost of Family B’s roof 5 years ago: $10,000

Insurance policy: ACV                                                    Insurance policy: RCV

Policy deductible: $1,000                                              Policy deductible: $1,000

Cost of repairs to roof: $10,000                                   Cost of repairs to roof: $10,000

Depreciation schedule: $1,000/year                            Depreciation not applicable for RCV

Insurance payment:                                                 Insurance payment:

$10,000 repair cost                                                         $10,000 repair cost

– $5,000 depreciation ($1000/yr x 5 years)            – $0 depreciation (no depreciation with RCV)

– $  1,000 deductible                                                      – $  1,000 deductible

=$  4,000 insurance payment                                      =$9,000 insurance payment

Concluding Thoughts

As a result, family A is only getting $4,000 from their insurance company which means if they go with the original quote of $10,000 from their roofing contractor, they will have to furnish the remaining $6,000 out-of-pocket. In comparison, family B will only need to cover their deductible. A dilemma for family (ACV) is they are forced to price shop for roofing contractors. Furthermore, they may be compromising quality and craftsmanship.

With an RCV plan, there is really no need to price shop and you can simply go with the roofing contractor that you trust the most. In contrast, an ACV plan leaves you no option.

For that reason, roofing contractors in Omaha would offer the same recommendation. Similarly, check your policy to see which coverage you have. A reputable roofing company or insurance carrier can certainly explain the differences between ACV RCV policy.

As always, we can give you a FREE inspection. Please fill out our contact form or give us a call at (402) 889-3381.