Actual Cash Value vs. Replacement Cost Value: What’s the Difference?

Whether you’re talking about insurance for your home or your car, it’s important to understand your coverage. When you see terms like Actual Cash Value (ACV) or Replacement Cost Value (RCV) listed in your policy, this is how insurance providers calculate the payout for damage to your home or car. There are a few different factors that can determine which type of coverage you have, but first it’s important to understand the terms themselves. You should always refer to your policy language and check with your agent for in-depth definitions, but this guide can help you get a better understanding of your coverage.

What Is the Actual Cash Value (ACV)?

What does ACV mean in insurance? The Actual Cash Value reflects the amount your home or car is worth now. If you were to sell your home or car, ACV is the amount you could expect to get for it, and it accounts for depreciation (loss in value). The ACV associated with your property may be less than the amount you paid for it when you bought it new because depreciation accounts for things like wear and tear.

What Is the Replacement Cost Value (RCV)?

The RCV is based on current prices, so how much it would cost today to replace your property with a new home or car of similar kind and quality. RCV does not deduct depreciation, so it’s typically a higher payout compared to ACV.  

What Determines My Coverage?

Depending on your provider, there are factors that influence whether or not your property qualifies for ACV or RCV. Only your insurance company can walk you through why you would receive one or the other, so be sure to check with your agent.

Age and Condition of Your Property

In general, one of the biggest factors that influence your coverage is the age and condition of your property. Do you own an older home? Is your car brand new? 

Keep in mind when it comes to your home, you may have coverage that is specific to your roof only. For example, your home may have RCV, but your roof has ACV due to greater depreciation.

Your Policy Type

A standard policy may default to ACV. In this case, RCV is likely considered an add-on or endorsement to the policy and you would have to pay extra in premium for this coverage.

Your Provider’s Guidelines

Each insurer has their own rules about when RCV is an option. Your provider may have set guidelines for what qualifies for RCV, like all vehicles four model years old or newer are eligible to have RCV coverage, for example.

Talk to an Agent

Understanding your coverage can be tricky, having an agent to sit down with you and walk you through it makes it a lot easier. Reach out to a Farm Bureau insurance agent to talk about your property and its value. They can help you find the policy that’s best for you.