Actual Cash Value vs. Replacement Cost Value

As a homeowner in NJ, it’s important to understand the different types of Insurance coverageReplacement Cost vs Actual Cash Value - Insurance NJ available to protect your investment. Two key terms to know are actual cash value (ACV) and replacement cost value (RCV). While they may sound similar, there are significant differences between the two! And it is those differences that will impact your insurance claim payout in the event you ever have a loss.

What is Actual Cash Value (ACV)?

Actual cash value is a term used in insurance policies to describe the value of an item at the time it was damaged or destroyed. It takes into account the item’s original value, minus depreciation, which is the gradual decrease in value over time due to age, wear and tear, and other factors.

What is Replacement Cost Value (RCV)?

Replacement cost value, on the other hand, is the amount it would cost to replace or repair a damaged item with a new one of similar quality and function. Unlike ACV, RCV does not take into account depreciation. Instead, it reflects the actual cost of replacing the item with a new one. Not only does it replace, but it also eliminates a lot of grey area in what you will and will not get. And that can be a big relief.  

Comparing ACV and RCV with An Example

Let’s say you have a roof that is 10 years old and suffers significant damage from a storm. The insurance company sends an adjuster to assess the damage and determines that the cost to replace the roof with a similar one would be $15,000.

If you have an actual cash value policy, the insurance company will factor in the depreciation of the roof due to its age. If the adjuster determines that the roof has a useful life of 20 years, then you would receive a payout of $7,500 ($15,000 minus 50% depreciation for the 10 years of use).

On the other hand, if you had a replacement cost value policy, the insurance company will cover the full cost of replacement, regardless of depreciation. In this case, you would receive a payout of $15,000 and be able to fully replace their damaged roof.

Which Type of Coverage is Right for You?

Insurance is a balance between paying more now or potentially paying more later. With RCV, your premiums are higher but you are fully covered when a claim arises. With ACV, you would pay less in premiums, but may need to pay a lot out-of-pocket for a replacing items. In the example above, you’d be paying $7,500 for a new roof while the person with RCV coverage wouldn’t pay a penny! You’d be paying less now, but more overall.

We recommend having RCV for the peace of mind it brings. We wouldn’t want you to pay a little less now and then be in situation where you are paying excessive money to replace a roof or other item.

Why Bogle Insurance Support Is Your Best Bet

When it comes to the tough decisions related to various business insurance coverages, including Personal Lines Coverage for Property, Homes, Automobile, etc. you will want the most experienced professional agency. Bogle Agency Insurance, based in Lyndhurst, NJ, not only offers you, your family, and/or your commercial business property and liability insurance options, but we can help you understand all the variables. At Bogle Agency Insurance, we are your Bergen County, NJ, Insurance advocate. We are not the insurance carrier, we are a family insurance practice, 4 generations and 100+ years, dedicated to helping you make the best possible decision. Simply request a quote to get started today!