Understanding RCV Policies and Depreciation

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Whether you’ve dealt with insurance claims before, or not, when it comes down to payment and coverage, it can be quite confusing for a homeowner to figure out. Terms like RCV, ACV, and Depreciation are thrown out, and all sound similar to someone who has no experience with these terms. 

If you’ve ever dealt with insurance and insurance claims, you’ve probably heard of RCV (Replacement Cost Value). Replacement Cost Value (RCV) policies essentially cover the replacement cost of your home or belongings. RCV is the amount of money that it costs to restore your home to the previous state it was in before any damage occurred. This guarantees that the homeowner will receive the full amount required to replace damaged items with similar or of equal value items. RCV is typically the type of policy most homeowners go with, even though they usually have higher premiums because the payment is higher. The alternative to RCV is ACV (Actual Cash Value). 

ACV, or Actual Cash Value, is a different policy where the homeowner receives only the amount that the lost item was actually worth. This is going to be less in value because of depreciation. Most things depreciate and lose value over time, and so ACV pays for how much that item was worth at that moment. ACV premiums are lower because they provide less compensation when a claim is made. 

In most cases RCV is the way to go, just because you receive more money for your loss. Even though the premiums are more with an RCV policy, you don’t have to worry about not receiving enough money to fix the damages. 

In addition to RCV and ACV policies, you must also know about depreciation. Most things that you own lose its value overtime due to natural aging and wear and tear. This is called Depreciation. In other words, depreciation is when the monetary worth of our items and belongings depreciate, or decrease, after time. Furthermore, there are two types of depreciation: non-recoverable depreciation and recoverable depreciation. 

Non-recoverable depreciation is the amount of depreciation that is withheld from the homeowner and that will not be received once the job is completed. Non-recoverable depreciation is part of an Actual Cash Value (ACV) insurance policy, which states that you only get the Actual Cash Value for your items (ACV), and therefore means you receive what your items are worth at that time. You will not get reimbursed for depreciation (wear & tear) of those items.

Recoverable depreciation is the amount of depreciation that is withheld from the homeowner, but the homeowner will receive the money in the form of a check once the work is completed. Recoverable depreciation is part of a Replacement Cost Value (RCV) insurance policy. This means that you may be eligible for reimbursement to cover the depreciation of damaged/affected items. 

If you have an RCV policy, you should submit a request to your insurance company for recoverable depreciation. Your request should be submitted to the insurance agent handling your claim as soon as possible, as there may be some time frames restricting you to do so if you wait too long. While it is great that you will get reimbursed for your belongings, keep in mind that you will not receive more than what your items are worth. You will only be reimbursed the replacement cost. 

Hopefully, this clarified what RCV and ACV policies are and how depreciation comes into play. It never hurts to ask your insurance company questions about your policy and coverage. It is better to be knowledgeable than to miss out on important details regarding your homeowners insurance coverage. 


Sources & Links:

“How ACV and RCV Affect Insurance Coverage After a Loss.” The Voss Law Firm, P.C., https://www.vosslawfirm.com/blog/understanding-acv-and-rcv-on-your-insurance-policy.cfm.


“The 2 Reasons Your Insurance Company Won’t Replace Damaged Property.” TrustedChoice.com, https://www.trustedchoice.com/homeowners-insurance/home-coverage-types/replacement-cost-insurance.


“Understanding Depreciation: Travelers Insurance.” Understanding Depreciation | Travelers Insurance, https://www.travelers.com/claims/guides/understanding-depreciation.


Staff, Motley Fool. “What Is the Difference Between Recoverable Depreciation vs. Non-Recoverable Depreciation?” The Motley Fool, The Motley Fool, 21 Jan. 2016, https://www.fool.com/knowledge-center/recoverable-depreciation-vs-non-recoverable-deprec.aspx.


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