When you first purchase a home or are looking to purchase a new homeowners insurance policy, you may be confused about what is written in there, what you should choose, and what everything means. What is depreciation? What are the additional living expenses? What is ACV vs RCV?
During such a confusing time, it’s important to know what exactly all these terms mean so that you make the right decision. You want to make sure that just in case you need to file a property damage insurance claim, you are covered for the damages.
What is the Difference Between ACV & RCV?
To start off, the Actual Cash Value, or ACV for short, is a term used by insurance companies that are in reference to the actual cost of what an item is appraised at. This means what the item was worth at the time that damage had occurred. This value is priced by taking the depreciation of the item and subtracting that from its original value.
Replacement Cost Value, or RCV, is the cost at which it would be to replace any damaged property with similar materials. This would mean that someone who has RCV insurance coverage on a 20-year-old roof that was damaged would get the same quality materials as it previously was, paid for by the insurance company.
Which Coverage Should I Choose?
There are pros and cons to choosing either the Actual Cash Value or Replacement Cost Value. The major difference between the two is that you can get better coverage with Replacement Cost Value Insurance but it will typically cost about 10-25% more than purchasing Actual Cash Value coverage.
It is important to know how your property and contents are covered for when a situation such as a fire or a storm occurs and damages your home. It is also important to note that most home insurance policies will have the Replacement Cost Value coverage for the structure and your actual home but the contents inside your home are usually covered by the Actual Cash Value coverage. Also, many insurance companies will set a limit on older homes to only being able to have coverage with Actual Cash Value.
Although it is more appealing to choose the cheaper option from a financial standpoint, those with Replacement Cost Value coverage are covered all the way up until their deductible while those with Actual Cash Value coverage have a greater chance of losing their money due to the fact that they must come to a settlement with their insurance company on the value of their contents and materials as well as subtract the depreciation from them.
How Does Having ACV vs RCV Affect My Insurance Claim?
Your first settlement check is given to you and that is typically the Actual Cash Value coverage estimate once your property damage has been assessed. Your second check is going to be the sum of the difference in the Actual Cash Value and the Replacement Cash Value. This occurs once all work is completed on the property and an invoice from the contractors is sent to the insurance company. So, in the end, you will always be better off choosing Replacement Cost Value coverage over Actual Cost Value due to the amount of coverage it provides.
What If I Have Property Damage?
Thankfully, whether you have ACV vs RCV, your insurance company will be covering your contents damage in RI either way, it all just depends on how much. When you have property damage, you always have the right to hire a public adjuster, someone who knows the ins and outs of insurance claims. With their knowledge, they will be able to negotiate the contents damage at your property and get you the highest possible settlement for your insurance claim.
Need to hire a public adjuster now? Visit this page to fill out a short form for your free in-home or virtual consultation.
