What is replacement cost coverage “RCV” and why is it important?

Actual Cash Value (ACV) isn’t equivalent to replacement cost value (RCV). ACV is calculated by subtracting depreciation from the estimated replacement cost value. The depreciation amount is calculated based on the expected “useful life” of the home, and then that depreciation percentage is multiplied by the RCV to get the ACV.

Here’s an example: Bill purchased a 30yr roof for $10,000 Fifteen years ago. The roof is damaged in a hail storm. Bill has a $1,000 deductible. His insurance adjuster tells him that the roof had a calculated “useful life” of 30 years and that A similar roof today costs $13,500. The destroyed property had 50% (15 years) of its life remaining. The ACV = ($13,500) X (50%”The expected useful life remaining”) answer $6,750. If Bill does not have replacement cost coverage RCV then all Bill would receive in this scenario is $5,750. (ACV-deductible) If Bill had Replacement cost coverage he likely would have received $12,500 (RCV – Deductible)