Replacement cost pays what it costs to repair or replace with new materials. Actual cash value subtracts depreciation for age and wear. Many policies pay actual cash value first, then release the held-back depreciation once repairs are done.
The two ways insurers value a loss
- Replacement cost value (RCV): the cost to repair or replace with like kind and quality at today's prices.
- Actual cash value (ACV): replacement cost minus depreciation for age and wear.
A simple example
Ten-year-old carpet costs $6,000 to replace today. If the insurer depreciates it 50%, the ACV is $3,000. On a replacement cost policy, you'd usually get $3,000 first, and the other $3,000 after the new carpet is installed.
Recoverable depreciation
On many replacement cost policies, the depreciation held back is "recoverable." To get it, you usually have to finish the repairs and send proof, like a final invoice, often within a set time.
Things to check
- Whether your dwelling and contents coverage are replacement cost or actual cash value. They can differ.
- The deadline to complete repairs and claim recoverable depreciation.
- Whether depreciation was applied to labor. Some states don't allow it.
- Whether the depreciation rates seem reasonable for each item.
Common questions
How do I get the held-back depreciation?
Complete the repairs or replacement, then send the insurer your final invoices and receipts and ask for the recoverable depreciation.
Can I argue the depreciation amount?
Yes. Ask how it was calculated and show the item's actual age and condition.
Do older roofs get paid differently?
Some policies pay only actual cash value on roofs past a certain age. Check your roof coverage schedule.