Replacement Cost vs. Actual Cash Value: What Will Your Insurance Really Pay?
When insuring your business property, how your insurer values a loss can make a big difference in your payout. Two common methods are Replacement Cost (RCV) and Actual Cash Value (ACV). Understanding the difference helps you choose the right policy for your budget and risk tolerance.
What Is Replacement Cost (RCV)?
Replacement Cost is the amount it would take to replace or repair your property with materials of similar kind and quality, without deducting for depreciation.
Key Benefits:
- Higher payouts after a loss
- Lets you rebuild or replace damaged property to original condition
- Often preferred for newer or high-value equipment and buildings
Example:
If your computer system is stolen and originally cost $5,000, RCV would pay for a new system at today’s prices, even if that’s now $6,000.
What Is Actual Cash Value (ACV)?
Actual Cash Value subtracts depreciation from the item’s replacement cost, giving you the current market value at the time of the loss.
Key Benefits:
- Lower premiums
- May be better suited for older equipment or lower-risk operations
Example:
That same $5,000 computer system, now five years old, might be worth only $1,500 under an ACV policy.
Key Differences at a Glance
- RCV = New-for-old payout
- ACV = Depreciated value payout
- RCV typically has higher premiums but provides more comprehensive recovery
Learn What Your Policy Pays Out
TriPack can help you evaluate whether RCV or ACV makes more sense for your business, based on your assets, location, and risk profile.