RCV vs. ACV
Key takeaways
- RCV (replacement cost value) and ACV (actual cash value) coverage refer to how your insurance company will assess value and pay to replace or repair damaged items following a covered claim.
- RCV pays to replace personal property with similar quality new items up to the policy limits following a covered claim.
- ACV pays to replace items at their pre-damage depreciated value following a covered claim (up to the policy limits).
- Most standard home insurance policies include ACV coverage for personal property with RCV coverage available for an additional cost.
Handling the cost of replacement is a significant portion of what home insurance does. However, when considering a homeowners insurance policy, there are two primary categories of how this replacement cost is approached: replacement cost value (RCV) and actual cost value (ACV). ACV is cheaper upfront but tends to pay out less, while RCV involves higher premiums but is also likely to pay more on claims. ACV, while typically more affordable, calculates how much to pay based on the depreciated value of an item. RCV, on the other hand, is based on how much it would cost to replace an item with a new one at current market prices. When deciding between RCV vs ACV, there are pros and cons of each to consider.
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Understanding actual cash value vs. replacement cost value
A standard home insurance policy includes several different types of coverage, from dwelling insurance to pay to rebuild the structure of your home to personal property coverage to cover the cost to repair or replace your personal belongings. Personal property typically includes (but is by no means limited to) your electronics, clothing and furniture. For example, if a fire damages your home, your personal property coverage pays to replace destroyed and damaged items up to your coverage limits. However, the amount you get paid after a loss depends on the type of coverage you have.
What is actual cash value?
If you want the cheapest home insurance premium, actual cash value coverage for your belongings may be the best option. After a covered loss, ACV only pays out to replace items up to their pre-damage depreciated value. ACV coverage for personal property is standard in most homeowners insurance policies but tends to offer you less financial protection.
For instance, you may have bought a new couch 10 years ago for $3,000, but subtracting depreciation, your couch might only be worth $1,250 today. If your couch is destroyed in a covered incident and you have ACV coverage, your insurance company will only pay out up to $1,250, likely leaving you with considerable out-of-pocket expenses to replace your couch with a similar new model.
What is replacement cost value?
Replacement cost value coverage typically costs more than actual cash value coverage. It is generally not standard in the personal property coverage portion of your average home insurance policy, so you will likely need to pay more for an endorsement to include this coverage.
With RCV, your insurance provider pays to replace personal property with similar quality new items up to your policy limits. If your items are destroyed or otherwise lost by a covered peril, RCV won’t take depreciation into account when determining how much you will be reimbursed for them.
Let’s go back to the couch example. If your 10-year-old couch is destroyed in a covered claim, but you have RCV personal property coverage, your insurance provider will reimburse you for the cost of a comparable new model at today’s prices, up to your policy limits. This means that even if you only paid $3,000 for the couch 10 years ago, if a comparable model is $5,000 today, you may be paid $5,000 to replace the damaged furniture.
Generally, RCV insurance requires you to buy the replacement item and send the receipt to your insurer, at which point they will reimburse you. Some insurers may provide an initial lump sum upfront, but to get the full amount of the new item you purchased, you may need to prove that the replacement model is of comparable value and demonstrate what you paid for it.
Extended or guaranteed replacement cost
In this article, we lay out the difference between RCV vs. ACV as it relates to personal property coverage because that is where homeowners most frequently have an option. Generally speaking, when it comes to dwelling coverage (the part of your policy that pays to rebuild the actual structure of your home), RCV is standard. You usually will not even be presented with the option to choose ACV for your dwelling because it would leave you with such significant out-of-pocket costs after a disaster.
Some homeowners opt for an upgraded replacement cost coverage added to their dwelling coverage to safeguard their finances after a covered peril. Both options will almost always increase your home insurance premium:
- Extended RCV: If your dwelling is insured up to a certain amount, but it would cost more to rebuild it after a disaster (e.g., because the material is in high demand with so many local homes to rebuild), extended RCV can step in. Extended RCV gives you a certain percentage (e.g., 25 percent) of extra dwelling coverage.
- Guaranteed RCV: Guaranteed RCV will also cover any additional amounts needed to repair or rebuild your dwelling after a covered disaster. Unlike extended RCV, it is not capped by a certain percentage.
Is RCV or ACV better?
Whether to purchase personal property coverage with replacement cost or actual cash value coverage likely comes down to your specific needs and priorities. If adding RCV to your policy would make home insurance unaffordable for you, ACV will likely still give you a significant measure of financial protection. However, if you can afford the additional expense of RCV, it might offer you greater peace of mind and make it easier to recover financially after a covered loss.
Depending on the belongings you own and their age, it may make sense for you to switch from ACV to RCV as your items depreciate. On the other hand, it may also make sense to switch from RCV to AVC if you have more disposable income to comfortably replace items out of pocket following a covered event. You might want to call your insurance company to see how much your premium would change if you switched from ACV to RCV or vice versa for your personal belongings.
Regardless of whether you choose ACV or RCV, you may want to consider creating a detailed home inventory to account for all your personal property. If you own a lot of expensive items, such as jewelry or high-end electronics, you may want to consider scheduled personal property coverage, as the average home policy’s personal property coverage limit is probably not sufficient to cover them, regardless of how the insurance company assesses value.
Pros and cons of RCV and ACV
Opting RCV over ACV for your personal property coverage may have a serious impact on your budget planning. The table below lists some pros and cons of each coverage option to potentially help you decide which works best for you:
| Coverage type | Pros | Cons |
|---|---|---|
| RCV | May allow you to replace your belongings after a covered disaster with new versions of the same items May help lower your out-of-pocket expenses after a covered loss |
Likely raises your premium compared to ACV Replacement items may need to be purchased before you can get fully reimbursed for your covered claim |
| ACV | Coverage is generally cheaper than RCV coverage May be a more affordable option if most of your personal belongings are fairly new |
May lead to higher out-of-pocket expenses after a covered loss |
Frequently asked questions
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For dwelling coverage, RCV comes standard on most policies. For personal property coverage, most home insurance providers will offer policyholders the option between ACV and RCV coverage. If you are interested in upgrading your personal property coverage from ACV to RCV, it is likely best to contact your home insurance provider directly. It is rare, but some insurance companies, like USAA, may automatically include RCV coverage for personal property.
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Depending on your insurer and your policy, it may be a relatively simple matter of contacting your agent and informing them of your decision. You will likely need to speak directly with an agent to implement this change in these cases.
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Whether you have ACV or RCV coverage for your personal property, the process starts by filing a claim after a covered loss. Call your insurance provider or fill out their online claim form to begin the process.You might want to take pictures of any damages to document the damage and help verify which items you need replaced or repaired. You’ll likely need to save receipts for any replacement items you buy. Your insurance provider may need to see those, particularly if you have RCV coverage. If you do have RCV coverage, your insurer may provide you with a base lump sum payout for your new items and pay the difference between this and the actual cost of new items once it receives your receipts.
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