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Replacement Cost vs Actual Cash Value (ACV)

Oct 7, 2010

Check your policies to see if your claims will be settled on a Replacement Cost basis or an Actual Cash Value (ACV) basis. ACV claims settlements will typically have depreciation withheld AS WELL AS the application of your deductible. This withheld depreciation is not recoverable.

In a simplified comparison, let us say that you have damage to a 15 year old roof with a 30 year useful life and your deductible is $500. Say that the cost to replace the roof is $10,000. $5,000 depreciation is withheld and the $500 deductible applied. The initial settlement paid by the insurance company is $4,500.

If your policy is ACV, the claim is closed there. If it is Replacement Cost, you will recover up to the $5,000 depreciation withheld after repairs are completed.

Of course, a Replacement Cost policy will require increased coverage amounts and the premium will be higher. You must weigh the cost versus the benefit and make the choice that is right for you.

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