Actual cash value (ACV) and replacement cost value (RCV) are the two ways a property claim gets settled, and the difference between them can be thousands of dollars on an identical loss.
| Settlement Type | How It Works | Example: 12-Year-Old Roof |
|---|---|---|
| Actual Cash Value (ACV) | Pays depreciated value | $4,000 payout on a $20,000 job |
| Replacement Cost (RCV) | Pays full replacement cost | $19,500 payout (minus deductible) |
Actual Cash Value
ACV pays what the damaged item is worth today, after depreciation. A 12-year-old roof destroyed in a storm gets paid at its depreciated value - not what a new roof costs, even though you have to buy a new roof either way.
Replacement Cost
Replacement cost pays what it actually costs to replace the item with a new equivalent, with no depreciation subtracted. Most RCV policies pay in two steps: an initial ACV payment, then the remaining 'recoverable depreciation' once you show proof the repair was completed.
Is the Premium Difference Worth It?
Replacement cost costs more in premium - usually 10-15% more - but the gap in payout on an older roof, HVAC system, or appliance can be the difference between affording the repair and paying the rest out of pocket.
Check your declarations page for the phrase 'replacement cost' or 'actual cash value' next to your dwelling and personal property coverage. The NC Department of Insurance offers a homeowners insurance guide for North Carolina residents. Start a free home insurance quote to review your current coverage terms.
