ACV vs. RCV: What Your Restoration Payout Actually Covers

The core difference, in practice

If a 10-year-old roof is destroyed, an ACV policy pays what that roof was worth at 10 years old, meaning less than the cost of a brand-new roof, because depreciation has been subtracted. An RCV policy pays the cost of a new roof of similar kind and quality, without subtracting for the roof's age. The NAIC's own framing is direct: RCV generally offers higher compensation to policyholders because it doesn't apply that depreciation deduction.

Why this matters specifically for restoration work

Restoration and repair costs are almost always priced at today's replacement cost, current materials, current labor rates, not at depreciated value. If your policy pays ACV, the gap between what your insurer pays and what the actual repair costs can be significant, and you're responsible for covering that gap out of pocket unless your policy has a separate provision.

The two-step payout structure

Many policies that offer replacement cost coverage actually pay in two steps: an initial ACV payment, followed by the remaining depreciated amount once the repair or replacement is completed and documented. This structure is common enough that it's worth asking your insurer directly which model your policy uses and whether you need to submit proof of completed repairs to receive the second payment.

How to find out which one you have

Your policy's declarations page and the specific coverage forms attached to it will state whether your dwelling and personal property coverage are written on an ACV or RCV basis; these can differ for structure versus contents on the same policy. The NAIC recommends contacting your state's department of insurance or your agent directly if you're unsure which applies to you. In Michigan, the Department of Insurance and Financial Services (DIFS) operates a consumer hotline at 877-999-6442 for coverage questions.

Why this isn't the same as market value

RCV is not the same as market value. Market value includes the price of the land and fluctuates with the real estate market; RCV covers only the cost to repair or rebuild the structure or replace the item, using materials of similar kind and quality, independent of what the property would sell for.

What to do before you need this information

Check your declarations page now, not after a loss, so you know whether you're working with an ACV or RCV policy and whether your policy uses the two-step payout structure. If you're on an ACV policy, budgeting for the depreciation gap, or asking your agent about upgrading to RCV coverage, is a decision better made before a claim than during one.

The bottom line for a restoration claim

The type of coverage you have doesn't change what damage occurred, but it changes how much of the repair bill your insurer actually pays. Confirm which one applies to your policy before you sign a restoration contract based on an assumed payout amount.

How this interacts with your contractor's estimate

A restoration contractor's estimate is typically written at current replacement cost, current material prices and labor rates, regardless of your policy type. If you're on an ACV policy, that estimate can be higher than your initial insurance payment, and the difference is a real cost gap you need to plan for, not a sign that either the estimate or the insurance payment is wrong. Ask your contractor to show the estimate in a way that separates materials and labor, since that breakdown can help you and your insurer reconcile any gap between the payout and the actual bill.

Where this shows up most often

ACV versus RCV differences tend to matter most on older components, an aging roof, older flooring, or dated cabinetry, where depreciation has had years to accumulate. A newer home, or a recently replaced roof or floor, will see a smaller gap between ACV and RCV simply because less depreciation has built up.