Replacement Cost Value
A claims settlement method that pays the cost to replace damaged property with new equivalent materials, without deducting for depreciation.
Replacement cost value (RCV) coverage pays to repair or replace damaged property with new, comparable materials without subtracting for depreciation. If your 10-year-old roof is destroyed, an RCV policy pays the full cost of a new equivalent roof—not the depreciated value of the old one. This is the gold standard for property insurance because it fully indemnifies the policyholder.
RCV policies typically work in two stages: the insurer pays ACV first (the depreciated amount), and then releases the "recoverable depreciation" holdback once you demonstrate that you have actually made the repairs or replacements. If you choose not to repair, you receive only the ACV amount.
RCV coverage costs more in premium—typically 10–20% more than ACV for homeowners policies—but the difference can be enormous at claim time. For a $20,000 roof claim with significant depreciation, an RCV policy might pay $18,000 while an ACV policy pays only $9,000. For homeowners, RCV for dwelling coverage is strongly recommended.
Real-World Example
Because she had replacement cost value coverage, the homeowner received $22,000—the full cost of a new roof—rather than the $11,000 ACV that would have been paid under her old policy.