RCV vs ACV: What Every Contractor Must Know

Replacement Cost Value (RCV) is defined as the full cost to replace damaged property with new materials of like kind and quality at current prices. Actual Cash Value (ACV) is the replacement cost minus depreciation. On an RCV policy, the carrier pays ACV first, then releases the recoverable depreciation after repairs are completed. On an ACV-only policy, the depreciated payout is all the homeowner receives - there is no second check.

Here's how replacement cost value and actual cash value actually work, what they mean for your claims process, and how to handle each one.

RCV: Replacement Cost Value

Replacement cost value (RCV) is the full cost to replace a damaged item with a new one of similar kind and quality, at today's prices. There is no deduction for age or wear. The carrier agrees to pay what it actually costs to make the homeowner whole, according to the Insurance Information Institute's definition of replacement cost coverage.

On a replacement cost policy, the payout happens in two stages:

1. Initial payment (ACV): The carrier calculates the full replacement cost, subtracts depreciation, subtracts the deductible, and sends a check. This is the actual cash value payment.
2. Depreciation recovery: After repairs are completed and documented, the carrier releases the recoverable depreciation - the amount they held back in step one.

When both payments are collected, the homeowner has received the full replacement cost minus only the deductible. That's the deal.

ACV: Actual Cash Value

Actual cash value (ACV) is defined as the replacement cost minus depreciation. On an ACV-only policy, there is no second payment and no depreciation recovery. The carrier pays what the damaged item is worth today in its depreciated condition, and the homeowner is responsible for any gap between that number and the actual repair cost.

For a relatively new roof, the ACV and RCV might be close. For an older roof, the gap can be enormous. A 20-year-old roof on 30-year architectural shingles could see depreciation eat up a large portion of the replacement cost, leaving the homeowner with a check that doesn't come close to covering a new roof.

Why This Matters for Contractors

The policy type directly affects your ability to get paid. Here's how it plays out:

On an RCV Policy

• The homeowner will receive the full replacement cost (minus deductible) once repairs are done and depreciation is recovered.
• Your job is to make sure the approved scope reflects the actual cost of repairs. If it doesn't, you supplement.
• The homeowner has a financial path to a full roof replacement. You can quote the job knowing the money will be there.
• The holdback (depreciation withheld until repairs are complete) is your leverage to get the job done right and get paid.

On an ACV Policy

• The payout is what it is. No recoverable depreciation. No second check.
• The homeowner may receive a check that covers a fraction of the repair cost.
• You need to have an honest conversation early: "Your policy is going to pay X. The repair costs Y. That gap is your responsibility."
• Some homeowners will choose to do a partial repair, use lower-cost materials, or finance the difference.
• Supplements still matter - you want the approved scope to be as complete as possible - but a higher scope on an ACV policy still results in a depreciated payout.

How Depreciation Gets Calculated

Insurance carriers calculate depreciation using the straight-line method based on the expected useful life of each item. This depreciation is calculated per line item in Xactimate, not as a blanket percentage across the whole estimate (according to Verisk's estimating methodology).

Here's the general formula:

Depreciation = (Age of Item / Expected Useful Life) x Replacement Cost

So a 15-year-old roof on a 30-year shingle would be depreciated by roughly 50%. A 5-year-old roof on the same shingle would be depreciated by roughly 17%.

Important caveats:

• Carriers don't always use the same useful life assumptions. One carrier might rate a 30-year shingle at 25 years of useful life; another might use 30.
• Some carriers depreciate labor, some don't. This varies by state and policy.
• Depreciation is calculated per line item, not as a blanket percentage across the whole estimate.
• Some items depreciate faster than others. Paint depreciates faster than framing lumber.

How to Check Which Policy Type Your Client Has

The declarations page (dec page) of the policy will tell you. Look for:

• "Replacement Cost" or "RC" next to the dwelling coverage - this means RCV policy.
• "Actual Cash Value" or "ACV" next to the dwelling coverage - this means ACV policy.
• "Modified Replacement Cost" - this is a hybrid that caps the payout. Read the details carefully.

Don't take the homeowner's word for it. Many homeowners don't know what type of policy they have. Ask to see the dec page before you commit to a scope of work.

The Conversation You Need to Have with ACV Homeowners

This is the conversation most contractors avoid, and it's the one that matters most.

When a homeowner has an ACV policy on an older roof, you need to be upfront:

• Explain that their policy will pay the depreciated value, not the full replacement cost.
• Give them a realistic estimate of what the insurance check will likely cover.
• Present their options: partial repair, financing the difference, material downgrades, or paying the gap out of pocket.
• Do not promise that you'll "make insurance pay for everything." You can't, and you'll damage your credibility trying.

The contractors who build long-term businesses in insurance restoration are the ones who tell homeowners the truth early, not the ones who promise miracles and disappear when the check doesn't cover the job.

How CapOut Helps with Either Policy Type

Regardless of whether the policy is RCV or ACV, you need to review the adjuster's estimate line by line. That means getting it into a format you can actually work with.

If the adjuster sends a PDF estimate, CapOut converts it to an ESX file in seconds and sends it directly to your Xactimate account. You can then compare it against your own scope and identify what's missing or underpriced, all without re-keying the entire estimate by hand. From the same upload, CapOut also gives you a profit breakdown by trade so you can see the financial picture before the truck rolls.

On an RCV policy, this helps you write stronger supplements that increase the approved scope and the recoverable depreciation amount. On an ACV policy, it helps you make sure the approved scope is as complete as possible, because even a depreciated payout based on a full scope is better than a depreciated payout based on a missed scope. If an adjuster denies a line item on either policy type, CapOut's AI Claim Assistant writes documented, cited responses to support your position.

Related Guides

• Recoverable Depreciation Explained: A Contractor's Guide
• Who Keeps the Recoverable Depreciation Check?
• Depreciation Calculator