The Difference Between ACV and RCV Insurance Policies

Real estate agent offer house. Property insurance, mortgage and real estate services concept.

Air conditioning vents? Remote control vehicles? No, when we at Peak Roofing & Construction use these initials, we’re talking about insurance. They represent an important distinction in homeowner’s coverage: Actual Cash Value or Replacement Cost Value. You also have to factor in your policy’s deductibles and dollar limits.

Actual Cash Value (ACV) coverage means the replacement cost minus depreciation. Depreciation is a reduction in the value of something over time, typically due to wear and tear. The car you bought new 10 years ago that now has 150,000 miles on it is worth a lot less than what you paid for it. Houses are a little different. Overall, they generally increase in value over time, but parts of the house can depreciate. The roof is a great example. For example, if you live in Prosper or Lewisville, it may have cost $10,000 to put on 10 years ago, but the value might be $6,000 today. If your ACV policy has a $2,000 deductible, you pay that amount first, then the insurance company pays the remaining $4,000, so if a new roof costs the same $10,000 you’re responsible for $6,000 ($2,000 deductible + $4,000 difference in cost).

Replacement Cost Value (RCV) coverage is generally more expensive but may help you sleep better at night. That’s because it covers the cost of the roof at today’s prices. Let’s say the roof will cost $10,000 to replace now even though it only cost $7,000 several years ago when it was put on. With an RCV policy, the insurance claim is based on the current $10,000 amount. So after the same $2,000 deductible, insurance pays $8,000… twice as much as the previous example!

I think the biggest item to understand is you will recover the depreciation on an RCV policy versus a ACV policy. I call depreciation “hold back” money when it comes to an RCV policy, because the insurance company depreciates your claim, and they hold that money back until all final invoices are submitted. If your contractor submits the final invoicing that reflects the total cost of the roof, then you will recoup the recoverable depreciation. On ACV policies, you do not receive any recoverable depreciation.

I’ve used the term deductible a few times now. The deductible is the amount of the claim you have to pay yourself. A low (or even $0) deductible will come with a higher monthly premium because the insurance company’s financial risk is higher. Higher deductibles help policy holders save on their premiums, but the homeowners are on the hook for more of the cost. You can learn more about choosing and lowering your deductible here. And remember, if a roofer offers to “eat” your deductible or cover the cost for you, that’s illegal in Texas.

Dollar limits are also important variables to consider because all types of coverage have them. Dollar limits are the maximum amounts insurance will pay. Peak Roofing & Construction agrees with the Texas Department of Insurance recommendation to make sure you have enough coverage to replace your home and property if you have a total loss. If your dollar limits don’t match the actual costs, you’ll have to pay the difference.

Peak Roofing & Construction works with insurance carriers on a daily basis and are here for customers throughout the estimate, inspection and installation process. Call us today for a free inspection.

About Peak Roofing & Construction

Peak Roofing & Construction is family-owned, with 30-years of experience. Bonded, insured and accredited, we provide roofing, gutter, fence, window and exterior facelift services. Guaranteed. Call (972) 335-7325 in Dallas-Fort Worth (residential & commercial).