How the insurance company pays a claim: RCV vs. ACV
“We will pay the cost to repair or replace with similar construction and for the same use on the premises, subject to the following: until actual repair or replacement is complete, we will pay only the actual cash value at the time of the loss of the damaged property.”In short, Actual Cash Value = Replacement Cost - Depreciation. The definition of Replacement Cost is the actual cost in today’s dollars to repair or replace an item(s) back to pre-loss condition. Depreciation is the deduction based on the age and useful life of that item(s).
You have a fire loss at your home that was built in 1980. The fire causes $100,000 RCV in damages. The insurance company deducts $30,000 in depreciation from the RCV of $100,000 and issues an ACV payment of $70,000.
If you have an ACV Insurance Policy: You would be paid $70,000 for your loss, but you would not be compensated for the depreciated amount of $30,000. While insurance premiums are lower for an ACV only policy, you may find yourself paying a substantial amount of money out of your own pocket should you incur a loss.
If you have a RCV Insurance Policy: You would only be able to recover the depreciation of $30,000 if you incurred that expense over the ACV payment of $70,000. The insurance company would require additional documentation (i.e. receipts, contractor’s invoices, and/or a completion inspection) before the recoverable depreciation could be paid.One of our clients recently experienced the frustration many property owners go through when their claim was depreciated aggressively by the insurance company’s adjuster from $110,300 RC to $58,000 ACV. Due to FirstCall’s involvement with the claim, our client was ultimately paid policy limits—over $130,000! FirstCall’s ability to properly prepare, document, present, and negotiate your claim can mean more money in your pocket. Contact us today for a free consultation!
|Barry Runk, Structure Adjuster firstname.lastname@example.org||Meghann Vamvas, Commercial Consultant email@example.com|