ACV? RCV? Depreciation? It makes a huge difference in the outcome. by Philip Weber of Claim Animalz
First: Every HO (Home Owners) Policy in Colorado states that the insurance company only owes actual cost value actual (ACV) and commonly referred to as actual value, until the repairs/restoration have been completed. Yes, even if you have an Replacement Cost Value (RCV) policy.
ACV stands for Actual Cash Value. With a few exceptions (like fine wine or classic cars), most things are worth less as they age. That shiny new car you bought five years ago will sell for a lot less today. This is called depreciation. Actual Cash Value is calculated as the amount it would cost to replace the lost item, minus a depreciation amount that is based on its age and condition. Condition is important. Think about it in these terms; two houses side by side or side by each... these two houses were build the same year by the same contractor and are the same floor-plan and have the same finishes. One was purchased by an elderly woman and one was purchased by a young family with 6 children of which 4 are boys and two large dogs. The elderly woman has floor runners and plastic covers for her furniture. She keeps the house in pristine order and condition. The young family with all the kids lives in chaos. There are no runners to protect the floor and the kids track in mud and snow and everything under the sun. Sometimes dad brings his motorcycle into the living room to work on it because it's too cold in the garage. I won't even get into the dogs. Now go into both those house in 5 years and what will you find? Will the carpets be the same condition even though they are the same age? Not NO... But Hell NO! So the depreciation for the young family's carpet will be extreme and the depreciation for the elderly woman will be minimal.
We can think of ACV this way; it is the actual cash you could get today if you sold the item. Sell your 5 year old car and see if you can get the replacement cost. Not Going to happen. That's depreciation. How is it calculated? Most adjuster we have met do it wrong, that's our opinion. There are programs that factor age and condition. If the adjuster uses it that adjuster will enter the age and then a condition; excellent, good, fair, poor and the program comes up with a price. Problem is this is not always accurate and worse most adjusters don't even do this. They simply put a percentage and often it is high so they pay you less. This makes a difference whether you have an ACV policy or a RCV policy. Except the the RCV policy will eventually pay the 100% of the replacement costs and the actual cost value will not. So when an ACV claim is overly depreciated... the insurance company is effectively stealing your money. differences
No matter what, if your insurance is based on ACV and you suffer a loss, you will generally get a lot less money than you need to replace your belongings with like-new items.
RCV stands for Replacement Cost Value This one is easy to understand and by far your best value! Your insurance pays you an amount that it would cost to replace the lost item with another of like quality and value. If you have a house fire and your 5 year old – 50 inch flat screen TV is destroyed, RCV coverage will replace your TV. What this means is, your loss will not be depreciated. The alternative with ACV coverage may leave you looking for a used TV, or a lower quality new model.
Pitfalls: Often enough insurance companies, through their adjusters, depreciate unreasonable. This is a problem for some owners because it can mean you don't get enough money upfront to buy even the materials. So you choice is to come out of pocket and get reimbursed once the insurance company finally pays the RCV.
This can be a tremendous problem if you have a policy that says when your roof is a certain age it will convert from RCV to ACV in their coverage. In this case you do not get reimbursed for the depreciation. It can mean that there is very little money and sometimes not even enough to buy materials and no more coming.
Example: If the insurance company agrees that the replacement of your roof is $9000.00 and states your roof has 50% life left then sends you $4500.00 as an ACV payment and you do not replace the roof, you will not receive the remaining 50% and your roof will no longer be covered until it is replaced, and likely if it is not replaced within 12 months, they will cancel your policy. When you get a new insurance company they will sign you up and at some point they will perform an underwriting inspection and will likely tel you they to will not cover your roof unless and until it is replaced. Lastly, you could end up being considered a high risk because of your decision not to replace the roof and this can eliminate you from many top insurance companies with the lowest premiums and relegate you to the higher risk companies that charge more premiums. This would not be a short term problem and would not necessarily go away after the roof is installed. You may have to live with these higher premiums for years.