What does it mean to have an Asset Insured at Replacement Cost Value vs. Actual Cash Value?


There are several ways that insurance companies can determine values and amounts to be paid in the event of a loss. Two common forms for doing this are replacement cost and actual cash value.

What are these?

Replacement Cost Value(RCV)-is the amount the insurance company would pay to replace an asset at present value. It is the cost to replace the property of comparable quality used for the same purpose. The only exception could be if the item can be repaired for less. Policy terms would define this.

Actual Cash Value(ACV)- this one is a bit more tricky. It is the cost to replace an item, less depreciation. This is also called “Fair Market Value” This is the amount you would expect to get if they item were sold in the marketplace. The depreciation is calculated using formulas that account for the category and age as well as the wear and tear. As this produces less pay out than RCV ,it generates less insurance premium.

What is an example? 

If a valuable such as camera or computer were stolen, if it were insured as RCV then the policy will reimburse for the  full replacement cost of new or like kind. If insured as ACV, the wear and tear will factored into reimbursement whereas with RCV, it will not. With ACV they will go through the process or apply the formula for calculating the depreciation. ACV is the the replacement cost less the depreciation. With ACV  wear and tear as well as “fair market value” will be assessed.

If this comes up on your policy make sure to ask your agent about the differences in coverage to find out what is best coverage for you.

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