Definitions
ACV vs RCV, and why your first cheque is smaller than the estimate
Replacement cost value, or RCV, is the full cost to replace damaged property with new materials of similar kind and quality at today's prices. Actual cash value, or ACV, is that figure minus depreciation for age and condition, and it is what most policies pay first. On a replacement cost policy the withheld difference is called recoverable depreciation and is released after the work is completed and the final invoice is submitted. On an actual cash value policy it is never released at all.
The arithmetic, worked
| Replacement cost value, the full job at today's prices | $28,000 |
| Less depreciation for age and condition | − $9,000 |
| Actual cash value | $19,000 |
| Less wind and hail deductible | − $4,000 |
| First payment | $15,000 |
| Recoverable depreciation, released after the work is invoiced | $9,000 |
| Total on a replacement cost policy | $24,000 |
| Total on an actual cash value policy | $15,000 |
That $9,000 difference is the entire reason this distinction matters. A homeowner who receives $15,000 on a $28,000 roof and assumes they were underpaid may simply have been paid in a sequence and stopped after the first step. How to collect the rest.
Where to check which one you have
Your declarations page, under loss settlement. Look specifically for separate wording about the roof, because a policy can settle the dwelling at replacement cost while settling roof surfaces at actual cash value or on a sliding schedule by age. This has become considerably more common as carriers have tightened roof coverage in hail-exposed states.
An older roof, on an actual cash value settlement, in a state with a percentage wind and hail deductible, can produce a claim that is technically covered and practically worthless. A twenty year old roof depreciated by seventy percent on a $30,000 replacement cost is $9,000, and a 2 percent deductible on a $400,000 home is $8,000. The net payment is $1,000. This is worth knowing before a storm, at renewal, when you can still change it.
Questions
What is the difference between ACV and RCV?
Replacement cost value is the cost to replace the damaged property with new materials of similar kind and quality at current prices. Actual cash value is replacement cost minus depreciation for the age and condition of what was damaged. On a replacement cost policy you eventually receive the full replacement cost, but in two payments, and only if you complete the work and claim the second one.
Is ACV or RCV better?
Replacement cost coverage is substantially better for the policyholder and usually costs more in premium. On an actual cash value settlement a twenty year old roof may be worth very little after depreciation, and once a percentage wind and hail deductible is also applied the net payment can approach zero. Check which applies to your roof specifically, because many policies now settle the roof at actual cash value even when the rest of the dwelling is replacement cost.
How is depreciation calculated on a roof claim?
Carriers apply depreciation based on the age of the roof against its expected useful life, along with its condition. A ten year old architectural shingle roof with a thirty year expected life would commonly be depreciated by roughly a third, though methods vary. Depreciation applied to labour rather than materials is contested in a number of states, since labour does not wear out, and it is worth checking whether your estimate does it.
What is a roof payment schedule?
An endorsement that reduces roof coverage as the roof ages, often paying a declining percentage of replacement cost after a certain age. It converts what looks like replacement cost coverage into something much less generous for older roofs. Look on your declarations page for wording about roof surfaces, roof settlement or actual cash value loss settlement.