Insurance: Replacement Cost Value (RVC) vs. Actual Cash Value (ACV)

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Most homeowners do not think much about their homeowner’s insurance policy after purchasing.  Well, that is until a major storm hits, such as the hailstorm in Jefferson City, Missouri on March 27, 2020.

There are two types of policies for your home:  Actual Cash Value and Replacement Cost   

To explain the difference, we will use our owner, Larry Herzing’s claim.  Larry turned in a claim for roof, siding, gutters, and garage door due to the hail damage.  Let’s look at his damage:

  • He has two walls of siding that were damaged.  The siding is 15 years old and the color is no longer produced.
  • His roof has a 50-year shingle and is already 20 years old.
  • For this example, Larry’s garage door is at the end of it’s life. 

How will the two different policies pay out?

Replacement Cost Policy

This is the amount of money it will cost to put your home back to pre-loss condition.  This type of insurance allows you the money to repair or replace damaged items, with no extra cost to you other than your deductible.  This type of policy may cost more in premiums but is worth it.  Larry will be paid to put his home to pre-loss condition, meaning:

  • His siding will be replaced if there is no color match. 
  • He will be paid to put back a 50-year shingle on his home.
  • He will be paid to replace his garage door.

Larry’s home is made whole again with only paying his deductible. 

How do I get my full replacement costs?

First you need a correct scope of work, sometimes when there is a major storm, the adjusters can miss items.  That is why it’s important to pick a local reputable company to inspect your damage. 

Your first check from your insurance company will be actual cash value minus your depreciation.  Why?  The insurance company needs proof you replaced your items to pre-loss condition.  If you choose not to replace those items, you will not receive your full replacement value. 

Once you finish replacing all the damaged items, your contractor will submit a release of funds which includes your depreciated funds.  At that time, you will receive all the funds required, less your deductible to put your home back in pre-loss condition.

SIDE NOTE:  If you use a cheaper contractor, you WILL NOT receive the full amount from your insurance scope of work.  Here is the language from actual insurance paperwork:

If total charges for repair/replacement plus permits exceed the amount shown here for that repair/replacement, prior to any deductible, then additional amounts may be payable. If the actual cost is less, the final payment will be adjusted accordingly.

Choosing a cheaper contractor means you save the insurance company money; it does not mean you get to “pocket” the extra money.  You will only be paid for what it cost to put your home back into pre-loss condition!

Actual Cash Value (ACV) Policy.

Actual cash value defined as the cost to repair or replace your property at the time of loss, but it does not replace damaged items at full value.  You are paid for your items value at today’s price, not what it takes to replace the item. 

  • The insurance company will pay for replacing all walls so they match, however the siding will be depreciated for the age of the siding.  Larry will not be able to recover that depreciation. 
  • Larry will be paid for the roof in whole, but the payment will be depreciated by 20 years.  He isn’t paid full value for the 50 year; he is only paid the 30 years that was left on the life of the roof.  To put back a 50-year shingle, he must pay out of his pocket the difference. 
  • Since Larry’s garage door was at the end of it’s life at the time of the storm.  His insurance company may not pay anything to have the garage door replaced. 

To protect yourself, choose a local well-established contractor in the Jefferson City, Missouri area.  Our owner, Larry Herzing has been in the roofing business for over 20 years.  His passion is educating homeowners, protecting them from stormers and supporting our communities that we serve.  To learn more about our story visit our website https://www.fortifiedroofs.com/about/our-story/