What is the difference between actual cash value and replacement cost?
Actual cash value (ACV) equals replacement cost minus depreciation — the used, depreciated worth of your property. Replacement cost value (RCV) is the full cost to replace it with new property of like kind and quality, with no depreciation deducted. RCV policies pay materially more on a claim.
What is recoverable depreciation?
On an RCV policy, the insurer usually pays the ACV up front and withholds the depreciation (the recoverable depreciation). After you complete the repair or replacement and submit receipts, the insurer releases the holdback. If you do not replace the property, you forfeit the withheld depreciation and keep only the ACV.
Which is better, ACV or replacement cost coverage?
Replacement cost coverage is generally far better because it restores you to new condition. ACV coverage costs less but can leave a large gap — the depreciation on older roofs, appliances, and personal property can be substantial, and you pay that difference out of pocket.
How is depreciation calculated on a property claim?
Insurers depreciate based on the item's age divided by its expected useful life, sometimes adjusted for condition. A 10-year-old roof with a 20-year life is depreciated about 50%. You can dispute the insurer's depreciation with documentation of the item's condition and quality.