Replacement Cost vs. Actual Cash Value Property Insurance Coverage

June 30, 2020

Property insurance carriers in New Jersey offer two loss coverage options: replacement cost (RC) or actual cash value (ACV).

What Is Replacement Cost Coverage?

Replacement Cost (RC) coverage is usually 20-25% more expensive than actual cash value coverage.  This is because replacement cost does not factor actual depreciation of property into the settlement of your claim.  What it does factor is recoverable depreciation, which is determined by a claims adjuster.  When insuring lost property using this type of coverage, your insurance carrier will issue you a check for the actual cash value (total value minus depreciation) of the loss minus whatever deductible you selected when purchasing your policy.  For example, if the actual cash value is $20,000 and your deductible is $2,000, your first check will be issued for $18,000.  Following this, you would need to pay out of pocket for repairs equivalent to or above the actual cash value of $20,000.  Then, you would show your receipts to your insurance carrier, and they would issue you a check up to, but not exceeding, the ACV of $20,000.

What Is Actual Cash Value Coverage?

Actual Cash Value (ACV) coverage factors actual depreciation, once again determined by the claims adjuster, into your settlement, and you will not be eligible for reimbursement under this policy.  You will only receive one check from your insurance carrier, for the actual cash value minus the amount of the deductible.  You cannot make any additional recoveries beyond this initial number.

At David G. Sayles Insurance Services, we help our clients decide which of these options is best for them based on their current situation and risk factors.  Contact us at 1-800-439-0292 or insureme@dsayles.com for a consultation!

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