What is the difference between actual cash value and replacement cost?
Actual cash value (ACV) is the replacement cost minus depreciation for age and wear — it is what your used item was worth at the time of loss. Replacement cost value (RCV) is the full cost to replace the item with a new equivalent, with no deduction for depreciation. RCV coverage pays significantly more.
What is recoverable depreciation?
On a replacement cost policy, the insurer often pays the ACV first and holds back the depreciation amount. Once you actually repair or replace the property and submit proof, the insurer releases the withheld depreciation. If you never replace the item, you keep only the ACV.
Which is better, ACV or replacement cost coverage?
Replacement cost coverage is almost always better because it pays enough to replace your property with new items. ACV coverage is cheaper but leaves you out of pocket for depreciation — an eight-year-old roof might only be worth a fraction of its replacement cost under ACV.
How is depreciation calculated on a property claim?
Insurers typically depreciate based on the item's age relative to its expected useful life. A roof with a 20-year life that is 10 years old would be depreciated roughly 50%. Depreciation methods and useful-life tables vary by insurer and can be negotiated with proper documentation.