When you file a homeowner’s insurance claim for a covered loss, the amount you’re reimbursed depends on your coverage limits and whether you have replacement cost or actual cash value coverage.
Actual cash value coverage pays to repair or replace your home or property — minus depreciation, or wear and tear. Meanwhile, replacement cost coverage pays to repair or rebuild your property at today’s prices.
If you have replacement cost coverage (RCV), many insurers will issue you two checks: One for the actual cash value (ACV) of repairing your property, and one for the recoverable depreciation of your property. This is essentially the amount your home or property has depreciated since you first bought it.
ACV vs. RCV: Which is better?
Generally speaking, replacement cost is a superior form of coverage. RCV provides a larger claim reimbursement since it includes recoverable depreciation. On the other hand, actual cash value coverage will leave you paying more out of pocket on a loss. If you can afford it, go with replacement cost personal property coverage.
But if you don’t own that much stuff, or the belongings you do own are relatively new and still under warranty, then the short-term policy savings of going with ACV coverage may be worth it.
The factors that determine the amount you’ll be reimbursed when filing a homeowner’s insurance claim for a covered loss are important to be aware of. This includes your coverage limits and whether you have replacement cost or actual cash value coverage. By understanding these factors, you can make informed decisions about your insurance coverage. Ultimately, you can also prepare for the possibility of a covered loss.