Example of RCV vs. ACV in insurance
You bought a couch for $3,000 five years ago, and now it’s worth $1,500. If it’s damaged in a claim, here’s what you’ll get:
Actual cash value
You’ll get $1,500 because that is your couch’s actual value after five years of depreciation.
Replacement cost value
You’ll get the value of a brand new couch (similar model), which could be more or less than what you originally paid.
RCV vs. ACV on homeowners insurance
Your home (also called your physical structure)
Your home is protected by dwelling coverage (also called “Coverage A”). The amount of dwelling coverage is usually based on the cost to rebuild your home. Most standard policies cover your home at RCV. That means if your home is insured up to $250,000, then you may get up to that amount to rebuild if your home is destroyed. Just make sure your dwelling coverage amount is enough to cover you in case a complete rebuild is necessary.
Your belongings are covered by “personal property” coverage on your policy. When insuring your belongings (meaning everything you own inside of your home and in storage), you can choose between ACV and RCV. Most insurance policies default as ACV, but you can usually switch to RCV for an increased price. For example, if you paid $5,000 for a new couch 10 years ago, and it was destroyed in a fire, the RCV option would typically pay what it costs to replace your couch, which could be more or less than $5,000, minus your deductible.
Which option is best?
Like most insurance questions, it depends on your situation. Actual cash value insurance is usually the more affordable option. But, ACV may not offer enough coverage if something is damaged. The payout amount you’ll get from your insurer will likely be higher with replacement cost insurance. So, it’s a trade-off.
ACV = Lower price
RCV = More coverage
RCV vs. ACV on auto insurance
RCV on an auto policy
Replacement cost insurance is not always available for car insurance. For those companies that offer them, RCV policies are a good, but costlier, way to guard against auto depreciation. New cars may lose up to 11% of their value upon purchase.
ACV on an auto policy
You probably already know that a new car’s value begins to drop as soon as you drive it home for the first time. That means if you total your car, your auto insurer is unlikely to consider the sticker price as the actual cash value of your vehicle. Most auto insurers will look at the age and mileage of your car plus wear and tear when assessing how much your car is worth and, ultimately, the payout on your claim. At Progressive, we understand this can be a stressful and sensitive process, so we work with a third party to make sure we determine an accurate value.
Increased replacement cost
With some insurers, including Progressive, you’ll have the choice to purchase increased dwelling coverage for your homeowners policy. Also known as “extended replacement cost coverage,” increased replacement coverage ranges between 25% and 50% in additional coverage up to a certain limit. The increase in cost is often minimal and can be a good investment for appreciating homes. For instance, if your home’s value is $150,000 and you bought an extra 25% in coverage, you’d be protected up to $187,500.
Note that increased replacement cost is intended to cover increases in the price of construction and not upgrades. For example, if a hurricane devastated the town you live in, the demand for materials and labor would often rise—as would the cost of rebuilding your home.
Guaranteed replacement cost for home insurance
Some insurers offer guaranteed replacement cost coverage, which pays the full cost of replacing your home/property, even if the damage is more than the limits on your policy. Unlike increased replacement cost, there is no specific limit for the additional coverage. However, insurers typically cap guaranteed replacement cost at 20% above the amount of your home’s insured value.