What is Better: Replacement Cost (RCV) or Actual Cash Value (ACV)?

What's the difference between replacement cost (RCV) vs. actual cash value (ACV)?

Replacement cost value in insurance pays you for what it costs to replace your damaged belongings with similar items. Actual cash value pays you for what your current items are worth in their depreciated state. On homeowners and renters policies, your property and belongings can be insured for actual cash value (ACV) or replacement cost value (RCV). The replacement cost is the amount paid to replace property or personal belongings without any deduction for depreciation. The actual cash value is the replacement cost value minus depreciation.

Replacement cost means if you lose your possessions, insurance will replace them as if they were new. If you have actual cash value (ACV), they will only be replaced at what they are currently worth.

Example

Say you bought a recliner for $2,000 three years ago, and now it's worth $1,000. If it's damaged in a claim, here's what you'll get:

Actual cash value (ACV): You'll get $1,000 because that is your recliner’s actual value after five years of depreciation

Replacement cost value (RCV): You'll get the value of a brand new recliner (similar model), which could be more or less than what you originally paid.

Why Replacement Cost is Better Than ACV?

Actual cash value may be a more affordable option, but it may not offer sufficient coverage if your personal belongings are stolen or damaged.

If you lost $100,000 of your things, replacement cost means the insurer will pay you $100,000. With ACV, you may only get perhaps $50,000. Replacement Cost Value (RCV) is often a cheap coverage to add, and you don’t save that much with ACV to justify the savings.

Get insurance advice or a home quote from a licensed Texas insurance agent.