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 RCV (even if you have an RCV policy) if and when the restoration work has been completed.
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. We can think of ACV this way; it is the actual cash you could get today if you sold the item. There are set depreciation standards for just about everything, from roofing shingles to flat screen TV’s. 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 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. It can mean that there is very little money upfront and sometimes not even enough to buy materials.
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.