When you read your insurance policy or settlement, you'll run into two terms over and over: ACV and RCV. Understanding the difference is one of the most valuable things a homeowner can do, because it directly affects how much you receive.
What is ACV (Actual Cash Value)?
Actual Cash Value is the value of your damaged property after depreciation — in other words, what it was worth at the time of the loss, accounting for age and wear. An ACV settlement pays the depreciated amount, which is lower than what it costs to replace.
What is RCV (Replacement Cost Value)?
Replacement Cost Value is what it actually costs to repair or replace the damaged property with new materials of like kind and quality — without subtracting depreciation. On a replacement-cost policy, this is the goal.
How they work together
Many replacement-cost policies pay in two parts. First you receive the ACV. Then, after you complete the repairs and submit proof, the insurer releases the held-back recoverable depreciation, bringing you up to the full RCV. If you never complete the work, you may only ever receive the ACV.
Excessive or unexplained depreciation is one of the most common ways claims get underpaid. If the depreciation on your settlement seems high, it's worth having it reviewed.