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  • Writer's picturejoseph retcho

Choosing Between RCV and ACV in Home Insurance


When it comes to home insurance, one of the main things it helps with is covering the cost of replacing your belongings. But did you know that there are two main ways this replacement cost can be calculated? Let's break it down for you: replacement cost value (RCV) and actual cost value (ACV). ACV may be cheaper at first, but it usually pays out less. On the other hand, RCV may have higher premiums, but it often pays more when you make a claim. ACV looks at the depreciated value of an item, while RCV considers how much it would cost to replace that item with a new one at today's prices. So, when deciding between RCV and ACV, there are some things to think about.

Understanding actual cash value vs. replacement cost value

When you have a home insurance policy, it covers different things like rebuilding your home and replacing your personal belongings. Your personal property includes things like electronics, clothes, and furniture. For example, if a fire damages your home, your personal property coverage helps pay to replace or repair your stuff. But how much you get paid after a loss depends on the type of coverage you have.

What is actual cash value?

If you're looking for the cheapest option, actual cash value coverage might be the way to go. With ACV, your insurance company will only pay to replace items up to their depreciated value before the damage happened. This type of coverage is pretty common in home insurance policies, but it might not give you as much financial protection.

For example, let's say you bought a couch for $3,000 ten years ago. But because of depreciation, that couch might only be worth $1,250 now. If something happens to your couch and you have ACV coverage, your insurance company will only pay up to $1,250. This could leave you with a big chunk of money to come up with if you want to replace your couch with a similar new one.

What is replacement cost value?

Replacement cost value coverage is a type of insurance that pays to replace your personal belongings with new items of similar quality, without taking depreciation into account. This coverage is not usually included in a standard home insurance policy, so you may need to pay extra to add it.

Imagine your 10-year-old couch gets destroyed in a covered claim. With replacement cost value coverage, your insurance company will reimburse you for the cost of a new couch of similar quality at today's prices, up to your policy limits. So, even if you only paid $3,000 for the couch a decade ago, if a similar couch costs $5,000 now, you could receive $5,000 to replace it.

Usually, with replacement cost value insurance, you need to purchase the replacement item first and then submit the receipt to your insurer for reimbursement. Some insurers may give you a lump sum upfront, but you may have to prove that the new item is of comparable value and show how much you paid for it to get the full amount.

Extended or guaranteed replacement cost for dwelling

RCV is the standard for covering the actual structure of your home, while ACV is not usually an option because it could leave you with a lot of extra costs if something bad happens.

Now, some homeowners choose to add extra coverage to their dwelling coverage to make sure they're financially protected after a disaster. Both options will make your insurance premium go up:

  • Extended RCV: This kicks in if it would cost more to rebuild your home after a disaster than what it's insured for. For example, if there's a high demand for building materials in your area, extended RCV can give you extra coverage (like 25% more) to rebuild.

  • Guaranteed RCV: This will cover any additional costs to repair or rebuild your home after a disaster. Unlike extended RCV, there's no limit to how much it will cover.

Is RCV or ACV better?

Understanding Your Options

Deciding between replacement cost value (RCV) and actual cash value (ACV) coverage for your personal property can be a tough choice. It all depends on what you value most and what you can afford. If adding RCV to your policy would break the bank, ACV can still provide some financial protection. But if you have the extra cash to spare, RCV might give you more peace of mind and help you bounce back financially after a loss.

Adapting to Your Needs

As your belongings age, it might make sense to switch from ACV to RCV to ensure you can replace them at their full value. On the other hand, if you have the means to replace items out of pocket, you could consider switching from RCV to ACV. Reach out to your insurance company to see how your premium would change based on your choice.

Protecting Your Valuables

Regardless of which option you go with, it's a good idea to keep a detailed home inventory of all your personal property. If you own expensive items like jewelry or electronics, consider adding scheduled personal property coverage to make sure you're fully protected. The standard coverage limit on most home policies might not be enough to cover these high-value items, no matter how the insurance company values them.

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