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Insurance · General

What is the difference between replacement cost value (RCV) and actual cash value (ACV) in property insurance?

Correct answer

RCV pays to replace the damaged property with new property of like kind and quality, without deducting for depreciation; ACV pays RCV minus depreciation — representing the current market value of what was destroyed

  1. A They are the same thing
  2. B RCV pays to replace the damaged property with new property of like kind and quality, without deducting for depreciation; ACV pays RCV minus depreciation — representing the current market value of what was destroyed
  3. C ACV always pays more than RCV
  4. D RCV only applies to commercial property

Why this is the answer

VALUATION METHODS: REPLACEMENT COST VALUE (RCV): Cost to replace with NEW property of like kind and quality today — no depreciation deduction; most homeowners policies cover dwelling at RCV; higher premium but no 'out of pocket gap' for depreciation; ACTUAL CASH VALUE (ACV): RCV minus depreciation — the current market value; for a 10-year-old roof that costs $20,000 to replace with 50% depreciation: ACV = $10,000; PRACTICAL IMPACT: On a $15,000 roof claim with 50% depreciation: ACV policy pays $7,500; RCV policy pays $15,000 (minus deductible in both cases); RECOVERABLE DEPRECIATION: Some RCV policies pay ACV initially then pay 'recoverable depreciation' after repairs are completed — incentivises repair rather than pocketing the difference; ADJUSTER ROLE: Calculate depreciation based on age, condition, and useful life tables; document the valuation method used; communicate clearly with insured about which valuation applies.
Source: Insurance Adjuster — Property Claims, RCV vs ACV

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