Actual Cash Value vs. Replacement Cost Explained

Actual Cash Value (ACV) = replacement cost minus depreciation.

If your 5-year-old roof is destroyed and costs $20,000 to replace, an ACV policy might pay $12,000 after depreciation.

Replacement Cost Value (RCV) pays the full cost to replace the item with a new equivalent, regardless of age. RCV policies cost more in premiums but provide significantly better coverage. Always check your policy — many homeowners don't realize they have ACV coverage until they file a claim..