ACV vs. RCV: Are you covered correctly?

Let’s say your apartment’s just been robbed. Or maybe there’s been a fire or a flood.

First of all, we’re super sorry. Sure, this is just a hypothetical situation, but even hypothetically speaking, it’s no fun.

Now, let’s say you’ve done everything you’re supposed to do. You assessed your property loss using your carefully cataloged inventory. You alerted your landlord, your neighbors and your insurance company (and the police, in the case of theft). You filed your claim promptly and completely. 

Nice job! You’re already well on your way to Compensationtown!

But this “hypothetical now” is not the time you want to discover that you didn’t understand the difference between Actual Cash Value (ACV) and Replacement Cost Value (RCV). So let’s return to the “now” and explain.

When insurance companies replace your damaged or destroyed property or stolen items, they might not “replace” it in the literal sense. They typically give you an amount of money so you can replace it yourself. That dollar compensation takes the form of either “actual cash value” or “replacement cost value,” depending on the coverage you purchased. Or, in some situations, if your item can be repaired, you may only be reimbursed for the cost to repair it instead of the cost to replace it.

Let’s say you’ve insured your whatsamahoozit. You bought that whatsamahoozit five years ago for $2,000. But in that five years, your whatsamahoozit has depreciated in value. Now you can find exactly the same 5-year-old whatsamahoozit on the internet for $1,000. If your whatsamahoozit was covered for actual cash value, you’d be reimbursed that $1,000 — less your deductible — so you can go find another whatsamahoozit exactly like the one you lost. 

However, if your whatsamahoozit was covered for replacement cost value, you’ll be reimbursed at today's cost to replace your whatsamahoozit with a brand new whatsamahoozit (again, less the deductible you chose and up to the designated limit). In this case, you can go buy a brand-new whatsamahoozit if you like.

As with most things insurance-related, the two versions of coverage come with trade-offs that you’ll need to weigh. Specifically, Actual Cash Value typically comes with a lower monthly premium, while Replacement Cost Value is generally more expensive monthly.

Which is right for you? Choosing between ACV and RCV coverage is a decision only you can make, but it’s helpful to consider the way items depreciate both in price and in condition. For example, over five years, your couch will wear with time much differently than, say, a nice camera lens. Ask yourself if a 5-year-old, possibly used version of your property will suffice. In some cases it will, and in others, buying new might be worth a slightly higher premium. Again, the ultimate decision needs to be yours, but it’s important to make that decision before something happens — while you’re compiling your inventory, for example.

The good news about all of this? Toggle^® renters insurance gives you some freedom and flexibility when choosing and customizing almost any aspect of your insurance coverage, and replacement cost coverage is no exception. Our base policy defaults to actual cash value, but we give you the option to Toggle On^SM replacement cost value, if that is what you’re looking for.

Choice. What an amazing insurance concept, right?

Now that you understand ACV and RCV, check out this blog for more tips on how to use your Toggle® coverage.