As we enter the new year we face the potential for another round of storms with high winds an damaging hail in Texas. The spring of 2024 experienced a fairly active hail season in parts of Texas. As roofing contractors in South/Central Texas we inspected many roofs that had significant hail damage in parts of the hill country and south-central Texas. On multiple occasions we encountered homeowners that these storms put in a bind because of their choice in homeowners’ insurance coverage on their homes.
Here’s an example of one such situation. To save money on the premiums this homeowner went with a ACV(actual cash value) policy.
The total claim or RCV to replace the hail damage roof, windows and screens and gutters was $21,117.00. The home was valued at $330,000 and the homeowner had selected a deductible of 2% or $6,600.00. To further save money the homeowner went with an ACV (actual cash value) policy. The existing roof was a 25 year 3-tab shingle that was 12-1/2 years old, so it was depreciated 50 percent.
Here’s the Math:
RCV (Replacement Cost Value) $21,117.00
Less Depreciation (non-recoverable)($10,558.00)
ACV (Actual Cash Value)$10,559.00
Less Deductible($ 6,600.00)
Net Payout from Insurance$ 3,959.00
Here’s the Math had they chosen an RCV (Replacement Cost Value) policy:
RCV (Replacement Cost Value)$21,117.00
Less Depreciation (recoverable)($10,558.00)
ACV (Actual Cash Value)$10,559.00
Less Deductible($ 6,600.00)
Recoverable Credit$10,558.00
Net Payout from Insurance$14,517.00
ACV policies are cheaper, so you save on premiums and that is all well and good if you never have a claim but if you do have a claim the catastrophic loss is even worse because your out-of-pocket cost to make things right again are much higher.
Here’s a recap of how the 2 policies work.
RCV (Replacement Cost Value)
• How it works: Pays to replace damaged property with new items of similar kind and quality, without deducting for depreciation.
• Pros: Provides the financial means to fully restore your home and replace belongings.
• Cons: Generally higher premiums compared to ACV.
ACV (Actual Cash Value)
• How it works: Pays to replace items at their pre-damage depreciated value.
• Pros: Lower premiums compared to RCV.
• Cons: Payout may be significantly lower than the cost to replace the item with a new one, leaving you with a financial gap.
Key Differences:
• Depreciation: RCV does not factor in depreciation, while ACV does.
• Payout: RCV typically results in higher payouts, while ACV leads to lower payouts.
• Premiums: RCV policies generally have higher premiums than ACV policies.
Which is better?
The best choice depends on your individual circumstances, the value of your property, and how much risk you’re willing to assume.
• If you can afford the higher premiums and want the most comprehensive coverage, RCV is generally the better option.
• If you’re on a tight budget and prioritize lower premiums, ACV might be a more suitable choice.
Disclaimer: This information is for general knowledge and guidance only. It does not constitute legal, financial or insurance advice. Always consult with a qualified insurance agent or broker for personalized guidance on your specific needs and circumstances.
