ACV vs. RCV: Choosing the Right Payout Method for Your Property

When insuring your home or business property, the insurer must determine how they will calculate the value of your lost or damaged assets. The choice between **Actual Cash Value (ACV)** and **Replacement Cost Value (RCV)** is the single most important decision impacting your financial recovery after a major loss.

1. Actual Cash Value (ACV)

**ACV** is defined as the cost to replace the item today, minus depreciation. Depreciation accounts for the item’s age, condition, and expected lifespan.

Formula: Replacement Cost – Depreciation = ACV Payout.
**Impact:** Since older items are heavily depreciated, the ACV payout will often not be enough to buy a brand-new replacement, leaving a funding gap. ACV policies have lower premiums.

2. Replacement Cost Value (RCV)

**RCV** is defined as the cost to replace the damaged property with a new item of similar kind and quality, without subtracting for depreciation.

Impact: RCV ensures you can fully replace the item and avoid a financial shortfall. RCV policies have higher premiums but offer superior financial protection.

The Split Payout (Common RCV Practice)

In many **RCV** claims, the insurer first pays the ACV amount. Once you buy the replacement item and submit the receipts, the insurer pays the depreciation holdback—the difference between the ACV and RCV. This incentivizes the homeowner to actually replace the item.

The Recommendation: If you can afford the difference in premium, always choose **RCV** for your dwelling and contents. It is the only way to be made truly “whole” after a loss.

Carefully review your policy and understand if your personal property is covered on an **ACV** or **RCV** basis before a claim occurs.