Actual Cash Value or ACV of an asset or property is the amount that the insurer pays to the policy holder, after deducting the depreciation costs. Depreciation is the decrease in the value of the property, due to usage or wear and tear for a specific time period.
The Replacement Cost Value, (also known as RCV), is the total amount paid by the insurer for the replacement of the insured property or asset. It doesn't take depreciation into account.
The following example will hopefully explain the difference between ACV and RCV in a better way:
Suppose, you bought a car 1 year ago at the cost $18k, whose current market value is $19K.
After 1 year, the value of your purchased car depreciates by 30% (Standard Depreciation rate), i.e. $18000 * 30% = $5,400
Therefore, the present value of your car after depreciation will be $12,600 [$18,000 - $5,400]
Situation: You meet with an accident and your car gets totaled.
If you have an auto insurance policy that is supposed to pay you the RCV for the insured car, then you'll get the full cost for replacement at the present market value of the car, i.e. $19k.
If your auto insurance is supposed to pay you the ACV, then you'll get $12,600 only.
Posted: Mon Jul 27, 2009 09:55 pm Post Subject:
Replacement Cost Value (RCV)
Actual Cash Value (ACV)
ACV is payment for what you have. If your 30 year old roof is damaged, they owe you for a 30 year old roof. (Say 10K to replace roof... you get 7K minus your deductible.) (here you are out your deductible and the 3K)
RCV is they replace the damages and you recover the depreciation. They owe you for a 30 year old roof and then you can recover the depreciated amount. (Say 10K to replace roof....you get 7K minus your deductible and when the work is complete you get the rest.) (here you are out just your deductible).
Posted: Wed Jul 29, 2009 08:17 am Post Subject:
Not to mention that a replacement cost policy would cost more in terms of premium than the actual cash value policy. In other words, ACV policies have cheaper rates. However, if I'm asked for my opinion I'd suggest replacement cost policy since it offers better coverage.
Posted: Sun Aug 02, 2009 04:48 pm Post Subject:
Think about the worst case scenario, and think which one you would prefer. With ACV if your home was destroyed would you be able to rebuild your home with the amount?
I'm only just recently realizing the differences between ACV and RCV. Check into the premiums for both.
Posted: Wed Jan 23, 2019 11:09 pm Post Subject:
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