Want the tl;dr? Here it is…
What does RCV, ACV, and Depreciation mean on my insurance estimate?
RCV – Replacement Cost Value is the total amount estimated to repair your property back to it’s original state. ACV – Actual Cash Value is the total amount the insurance carrier estimates what your property is worth based on age. Depreciation is the dollar amount the insurance carrier deducts from the RCV based on it’s current condition & age.
Lets Talk About These Insurance Estimate Terms To Know In Detail
Navigating insurance estimate terms can be difficult, but fear not! As a seasoned roofing contractor with an intimate understanding of the insurance industry, we’re here to demystify the jargon and empower you with the knowledge you need to decipher what your insurance company is covering.
Let’s dive right in:
RCV – Replacement Cost Value:
When we mention RCV, we’re referring to the “replacement cost value” of your loss. It’s the comprehensive estimate to restore or replace your damaged property to its original glory. Most good insurance policies use this value as the total amount they pay after all repairs are completed.
Read more about RCV Policies
ACV – Actual Cash Value:
ACV, on the other hand, stands for the “actual cash value” of your loss. This amount is based on your property’s worth determined by its age. ACV can sway your insurance estimate in two primary ways:
For RCV Policies:
If you’re on an RCV policy, your ACV total is what the insurance carrier initially pays after you file your claim until repairs wrap up. Post-proof of completion (photos and documentation should be provided by your contractor), the carrier releases the difference between ACV and RCV (depreciation) – in a separate payment.
In the above example, the homeowner will receive an initial check with this estimate in the amount of $6,104.32. This total is the ACV less their deductible. Once repairs are completed and a notice of completion is sent to the carrier by the contractor, the depreciation, in the amount of $1,097.27 will be paid.
For ACV Policies:
With these policies (common with Allstate and Farm Bureau), you’ll foot the bill for both your deductible and the percentage of the total replacement cost that’s considered “depreciable.” For instance, if your replacement cost is $10,000.00, your deductible is $1,000.00, and the carrier depreciates your roof by 30% due to age ($3,000.00), you’re looking at an out-of-pocket expense of $4,000.00.
In the above example, the customer has an ACV policy, here they are responsible to pay $4,240.65 plus their $1,000.00 deductible to their contractor.
Read more about ACV Policies
Non-recoverable depreciation is the difference between RCV and ACV that the carrier does not owe for. That is typically found on ACV policies written by Farm Bureau and Allstate. You are responsible for this cost regardless of if you complete repairs or not. This is usually found on lower premium policies. Essentially, in the case of a covered loss, the carrier is making you pay for the age of the roof.
In the above example, the insurance carrier is holding back $4,240.65 as that is the amount they deem has been depreciated from the roof’s value. This amount is not paid to the homeowner, even after completion, and they are responsible for paying that amount directly to the contractor, plus their deductible. That brings the total out-of-pocket cost to the homeowner of $5,240.65.
Read more about Non-Recoverable Depreciation
RPS – Roof Payment Schedule:
RPS policies, employed by insurers like Allstate, craft affordability by design. They set a portion of non-recoverable depreciation based on your roof’s age. If repairs or replacements cost an estimated $10,000.00, your policy outlines what they’ll cover (usually 60% of replacement cost), leaving you responsible for $4,000.00 PLUS your deductible.
As you can see in the above example, the “Customer Portion for RPS” is the cost that the carrier passes on to the homeowner in lieu of a smaller premium payment. In this case, the customer is responsible for $14,501.12 not even including their deductible 😯. Now you can see why RPS policies, even though they have a much lower premium, in the case of a covered loss, aren’t worth the stress of being out-of-pocket for such a high amount.
Read more about RPS Policies
Recoverable depreciation equals the disparity between RCV and ACV. It’s payable post-repairs, upon validating completion to the carrier. For instance, an RCV policy pegs an estimate at $10,000.00, and they’ve depreciated the roof by 30% ($3,000.00). The $3,000.00 in recoverable depreciation waits until repairs wrap up before the carrier disburses it. It’s a standard practice, and good policies are typically RCV. Consult your agent to clarify your specifics.
In the above example, the total depreciation of $1,097.27 will be paid to the homeowner after a notice of completion is sent from the contractor.
Read more about Recoverable Depreciation
When you purchased your policy, a major factor in the policy pricing is the deductible. This is the total amount you will owe out-of-pocket if you file a claim. Deductibles are non-negotiable items by law. This means your contractor can not legally waive this amount and you must pay this amount directly to them.
Example – You file a roof damage claim and the agreed-upon damage equals $10,000.00. If you have a RCV policy, and your policy’s deductible is $1,000.00, the max you will be out-of-pocket, with the exception of any selected upgrades, is $1,000.00.
In the above ACV Policy example, the customer has a total deductible of $1,000.00. This amount is due to their contractor regardless of the type of policy they have.
Read more about Deductibles
To sum up, insurance estimate terms can be perplexing. RCV policies are the stars, ACV policies can lead to higher expenses, and RPS policies… well, shopping for a new policy with another carrier might be in order. If you ever have questions about any items on your insurance estimate, your contractor should help explain what they mean in detail. If they can’t do that… shop for another contractor.
Feeling ready to file an insurance claim? Read our How To File A Roof Damage Claim article!