Replacement Cost vs. Actual Cash Value: What’s the Difference?

Wed Aug 8 2018

Understanding the difference between replacement cost and actual cash value is one of the best ways to help you decide how much coverage you need.

What Is Replacement Cost Value and How Is It Calculated?

Replacement cost value (RCV) is the cost of rebuilding or replacing your home with the same exact materials at today’s prices. In order to calculate the replacement cost of your property, your Kin agents uses a replacement cost estimator.

A replacement cost estimator (RCE) takes several factors into consideration to generate the replacement cost of your home:

  • The type of walls
  • The square footage of the home
  • The type of floors

The RCE adds up the cost of those materials to reflect how much it would cost to replace your entire home with the same exact materials today.

What Is Actual Cash Value and How Is It Calculated?

While replacement cost is based on the what it would cost to rebuild your home in today’s market conditions, actual cash value (ACV) is the cost to rebuild your home minus depreciation. Depreciation is the decrease in value that occurs over time due to the change in the cost of building materials or wear and tear.

If you experience a loss with this kind of coverage, it’s helpful to have receipts of your items and descriptions of the make and model. That way when the adjuster determines the actual cash value of the damaged items, you have a better chance at getting a reasonable payout.

What If I Don’t Agree with the ACV?

You can dispute the adjuster’s assessment of the value of your damaged items, but you’ll need documented proof to strengthen your case to the insurer. If not, the adjuster or insurance company will offer their best estimate and evaluation of the items you have lost. You’ll get a quote of this estimate before you’re issued payment.

Which Is Better for Me?

If you want an easier time replacing lost or damaged items or rebuilding your home, replacement cost coverage is the clear winner. Though it costs a little more, this type of coverage offers you the means to replace your property with new items instead of looking for bargains or secondhand stuff.