Actual cash value definition
Actual cash value (ACV) is the amount to replace your damaged or stolen property, minus depreciation, at the time of the loss. It doesn't replace what you lost — instead, it reimburses you for the item's current value. To determine an item's ACV, an insurance adjuster will take the cost of replacing your damaged or stolen property and reduce the cost of the property based on depreciation, such as age and wear and tear.
If your living room recliner is destroyed in a fire and your personal property is settled at actual cash value, your policy may reimburse you for the cost of your recliner at a reduced amount due to the recliner's age and condition. You won't be reimbursed for the same amount it would cost to buy a new recliner.
Replacement cost value definition
Replacement cost value (RCV) is what it costs to replace damaged or stolen property without depreciation. If your personal belongings are stolen, damaged or destroyed in a covered loss, and your policy includes coverage for RCV, your insurer will reimburse you for the full cost to replace the items at their current price.
Your home is burglarized, and your television is stolen. Your insurer may pay out the cost to replace the TV that was stolen with a similar one.
What's the difference between replacement cost vs. actual cash value?
Replacement cost value in insurance pays you for what it costs to replace your damaged belongings with similar items. Actual cash value pays you for what your current items are worth in their depreciated state. For example, say 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.
Is ACV or RCV a better option?
Like most insurance questions, this depends on what you own and your personal preference. Actual cash value may be a more affordable option, but it may not offer sufficient coverage if your personal belongings are stolen or damaged. On the other hand, RCV increases the cost of your policy, but the payout amount you will likely receive from your insurer will be higher in the event of a covered loss.
ACV = Lower price RCV = More coverage
RCV vs. ACV on homeowners insurance
Your home (also called your physical structure)
Your home is covered under your dwelling coverage (also called "Coverage A"). The amount of dwelling coverage is usually based on the cost to rebuild your home. Most standard home insurance policies cover your home at RCV. For example, if your home is damaged from a covered event and your policy's dwelling coverage is $250,000, you may receive up to that amount to rebuild or repair your home.
Your belongings (also called your personal property)
Your belongings are covered under personal property coverage on your policy. When insuring your belongings (meaning everything you own inside your home and in storage), you may choose between ACV and RCV. Most insurance policies provide coverage on an ACV basis, but for an added cost, you can often purchase replacement cost coverage. For example, if you paid $5,000 for a new couch 10 years ago, and it got 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.
Learn more about homeowners insurance coverages.
Extended replacement cost for home insurance
With some insurers, you'll have the choice to purchase increased dwelling coverage for your homeowners policy. Also known as "increased replacement coverage," extended replacement cost coverage ranges between 25% and 50% in additional coverage. For instance, if your home's dwelling coverage is $150,000 and you bought an extra 25% in increased replacement cost coverage, you would have up to $187,500 in dwelling coverage.
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 or repairing 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 cost 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.
RCV vs. ACV on auto insurance
RCV on an auto insurance policy
An option for replacement cost isn't always available for car insurance. RCV policies can be a good but costlier way to guard against auto depreciation for those companies that offer them, as cars may lose around 10% of their value upon purchase.
ACV on an auto insurance 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 your car's age and mileage 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 determine an accurate value.
Looking for more information about auto insurance? Our car insurance resource center has you covered.