What is RCV, ACV and Depreciation?

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Answer

Most insurance policies offer Replacement Cost Value or RCV coverage.  This RCV amount is arrived after the total calculation of the damaged items required to repair or restore your property.

From this 'RCV' amount, appropriate depreciation is applied.  After deduction of this depreciation, you arrive at your Acutal Cash Value amount, or 'ACV'.  Depreciation is taken based on the age and condition of the items addressed, similar to how a vehicle depreciates.

Note only items that are being replaced are applicable to depreciation.  Cleaning, general items and removal and reinstallation of items are not subject to depreciation.  Items such as painting, sheet rock, cabinets, etc which were damaged and included for replacement are applicable to depreciation based on their age and condition. 

This depreciation becomes recoverable after proper documentation is provided to your insurer.  Photographs of the completed repairs and invoices for the repairs will support the actual cost incurred to determine how much of the depreciation is recoverable. 

Note: Other items that may be addressed in your claim such as carpeting, fencing and awnings are adjusted on an Actual Cash Value basis - where the depreciation applied is non-recoverable.  Also, Personal Property is adjusted on an ACV basis unless an endorsement is added to your policy, converting Personal Property to Replacement Cost when the same procedures are in effect to recover the depreciation.

Below is a sample of how depreciation is applied and recovered.

 

RCV:                                          $15,000.00

Depreciation:                            $  2,500.00

ACV:                                          $12,500.00

Deductible:                                $  1,000.00

Net Payment                             $11,500.00

In this scenario, $2,500.00 worth of depreciation is recoverable, if and when proper documentation is provided to prove the repairs exceeded the ACV amount of $12,500.00.  If your total repairs amounted to $15,000.00, then all of the $2,500.00 of depreciation now becomes available to you.  However if your total cost for repairs amounted to $13,500.00, only $1,000.00 of depreciation is available to recover. 

When meeting with your adjuster, be sure to be clear and concise if an area was recently renovated or painted so proper depreciation is applied based on the age of the item.  For example, if you do not express that an area was just painted last year, the adjuster may apply unfair depreciation assuming the paint was applied several years ago, resulting in higher depreciation and ultimately takes more away from your final settlement.

 

 

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