If you have read parts one and two of our guide, you have a handle on what your policy covers, and what your deductibles may be There is one other important factor that deserves a good hard look. Is your policy RCV or ACV? No, they are not ACDC cover band names, they are insurance terms that many policy owners have never had defined for them.
RCV stands for “Replacement Cash Value”, while ACV stands for “Actual Cash Value”. All many policy holders understand is that ACV is much less expensive in most cases than RCV, but, as you may have guessed, there is a perfectly good reason for that.
Let’s start with the less expensive, ACV policies to understand the difference. Most of us are familiar with the concept of depreciation. Depreciation is the reduction in value of an item, or property due to normal wear and tear, or other damages.
Actual Cash Value
This means that the Actual Cash Value of any given part of your home, when making an insurance claim, equals the repair or replacement cost-minus- your deductible-minus-depreciation. This may seem fair, until you realize that the contractors and material suppliers are not going to give a discount equal to that depreciation. This means added out of pocket expense for you in the recovery process.
Replacement Cash Value
A Replacement Cash Value policy covers your losses based on the fair market price of repairing, or replacing items, and construction elements, such as roofs, windows and doors. The claim, in some cases, can even be adjusted up to cover additional, unexpected costs. So your coverage in the case of an RCV policy is the cost of recovery-minus-your deductible, which often saves a homeowner thousands of dollars.
When comparing insurance carriers, policies and plans, always make sure you are comparing apples to apples, and not apples to oranges. Many times an insurance agent may sell a policy based solely on what the policy holder wants to spend, and neglect to give a full explanation of the differences between ACV and RCV.
If you would like more information about types of policy and how they effect you, please contact us at Info@hailandwind.com or contact your insurance agent and ask for a policy review, armed with the information you have learned here.