When it comes to homeowners or renters insurance, it’s not just about choosing the right insurance provider. You also want to make sure you have the optimal coverage amount, as well as the right coverage type for your situation. The latter includes choosing between actual cash value (ACV) and replacement cost value (RCV) for your personal property, which will determine how your policy will reimburse you for your belongings if you lose them in a covered event.
Either option has advantages and drawbacks and can be a solid choice, depending on your priorities. CNBC Select breaks down how both work, offers examples and provides advice and how to pick the correct coverage for you.
What is actual cash value (ACV)?
Actual cash value is a way an insurer calculates the cost to replace your damaged or stolen personal property by factoring in depreciation. This means that after a covered loss, your insurance company will only reimburse you for the item’s depreciated value. This type of coverage is typically standard to personal property coverage in homeowners insurance policies.
How ACV works
Your living room catches fire and your TV is destroyed. When you bought it five years ago, it was a brand new model and cost you $1,000. Due to depreciation, however, it would only be worth $750 today. This is how much your home insurance provider pays out to cover the loss of your TV — minus the deductible.
Note that not all companies will pay just the decreased value of your items — some may offer more. For that reason, it pays to shop around and find out the details. For example, Nationwide offers an optional “Brand New Belongings” feature which first reimburses you for the depreciated value of your covered items. Then, once you replace or repair the items, the company may pay the difference if you send them the receipt — which is similar to how RCV coverage works in some policies.
Nationwide Homeowners Insurance
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Cost
The best way to estimate your costs is to request a quote
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Maximum coverage
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App available
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Policy highlights
Policy covers home and property damages caused by theft, fire and weather damage. It also covers personal liability, loss of use and unauthorized transactions on your credit card
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Does not cover
Water damage, earthquakes, flood insurance, identity theft, high-value items, rebuilding home after loss (these can all be purchased as add-ons for extra coverage)
How is actual cash value determined?
Insurance adjusters inspect property damage claims to determine whether and how much the insurance provider must pay. An adjuster works out the item’s depreciation rate based on factors such as the type of the item, its condition and age. They’ll likely need a description of the item and its price at the time of purchase. For that reason, it’s wise to keep receipts for expensive property, such as certain electronics and furniture pieces.
Pros and cons of actual cash value
Most standard homeowner insurance policies offer ACV coverage for personal property — and it might or might not be the right choice for your home. Here’s what to consider:
Pros
- ACV is typically more affordable, allowing you to save on your homeowners insurance premiums.
- ACV can also be a good choice if your furniture, electronics and other belongings are new.
Cons
- If your belongings are older, you’ll have to pay more out-of-pocket to replace them with similar new items.
What is replacement cost value (RCV)?
Replacement cost value coverage typically isn’t included in the personal property portion of your home insurance policy — but you may be able to pay more to add it. With this type of coverage, your insurance company will pay to replace your personal property lost in a covered event with similar new items without accounting for depreciation.
How RCV works
Your living room catches fire and your TV is destroyed. When you bought it five years ago, you paid $1,000 — but a comparable new model currently costs about $1,300. This is how much you can be reimbursed for with RCV coverage, minus your deductible.
Usually, to get reimbursement, you’ll have to buy a replacement item and provide your insurance company with the receipt. Policies vary: the insurer may pay you a lump sum upfront or require that you prove the item is of comparable value to pay out the full amount.
Chubb Homeowners Insurance
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Cost
The best way to estimate your costs is to request a quote
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Maximum coverage
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App available
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Policy highlights
Policy covers home and property damages caused by wildfires, extreme weather, crime, vandalism and personal liability, which also covers claims for libel and slander. Also includes replacement cost for contents, extended replacement cost for dwelling and a cash settlement option
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Does not cover
Flood or equipment breakdown (these can be purchased as add-ons to your policy)
Pros and cons of replacement cost value
RCV can be an excellent option to protect your belongings — but there are potential cons to consider as well.
Pros
- With RCV, you can get a higher payout and replace your belongings with new comparable items without incurring extra costs.
- In some cases, you can get a lump sum from your insurer without purchasing new items first.
Cons
- RCV is generally a more expensive option and will most likely raise your home insurance premium.
- You may have to purchase new items first and prove they’re of comparable value to get full reimbursement.
Other instances you may encounter ACV and RCV
Most of the time, the personal property portion of your homeowners or renters insurance policy is where you can choose between ACV and RCV. But these two terms exist in other types of coverage as well.
For example, in dwelling coverage — another part of your home insurance policy — RCV is a standard and usually the only option. In this case, you can upgrade it to extended RCV which gives you a certain percentage to help you rebuild your home, or guaranteed RCV that will cover any additional amounts you need for rebuilding.
In car insurance, your insurance company will reimburse you for the actual cash value of your vehicle in case of a covered event. Some auto insurers offer RCV coverage as an option, though accessing it may be complicated.
Which is better: ACV or RCV?
Either ACV or RCV can be an excellent choice depending on your priorities and needs.
If your priority is to get the cheapest home insurance, ACV can help you save money and still provide financial protection for your belongings. This can also be a wiser option if most items in your home are new.
On the other hand, RCV may be a better idea if your belongings are older. Your decade-old appliances may be in great condition and working well, but if you lose them, ACV can make it expensive to replace them with new models — whereas RCV is more likely to fully cover the full cost.
Remember that your insurer may allow switching from one type of coverage to another. Get in touch with an insurance agent to see what your options are and how the change will affect your premiums.
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Bottom line
When it comes to personal property coverage in your home insurance policy, you typically can choose between ACV and RCV. The former is a standard and more affordable option, while the latter might offer better coverage and a higher payout in case of a covered loss. Consider the age and wear of your belongings, as well as your budget, when making a choice.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
Alice J. Roden started working for Trending Insurance News at the end of 2021. Alice grew up in Salt Lake City, UT. A writer with a vast insurance industry background Alice has help with several of the biggest insurance companies. Before joining Trending Insurance News, Alice briefly worked as a freelance journalist for several radio stations. She covers home, renters and other property insurance stories.