Term of the Week: RCV (Replacement Cost Value)

Replacement Cost Value (RCV) is the amount it costs to repair or replace damaged property with materials of like kind and quality at current prices, without any deduction for depreciation. It is the ceiling of what an insurer pays on a standard homeowner or commercial property claim when the policy is written on an RCV basis and the insured completes the repair.

How it works in practice

Most RCV policies pay in two stages. First, the carrier issues an Actual Cash Value (ACV) payment — RCV minus depreciation — when the claim is accepted. Once the insured completes repairs and submits proof, the carrier releases the recoverable depreciation (sometimes called the "holdback"), bringing the total payment up to RCV less the deductible.

Example: A wind-damaged cedar-shake roof has an RCV of $28,000. The roof is 15 years old; the adjuster applies $9,000 in depreciation. The initial ACV payment is $19,000 (minus the deductible). After the insured replaces the roof and submits the contractor invoice, the carrier releases the $9,000 holdback.

Where adjusters need to be careful

• Like kind and quality: Replacing cedar shake with architectural asphalt shingles is not like kind and quality. The scope must match the original material — or document why a substitution is agreed and how the price is adjusted.
• Code upgrades: Many policies include an Ordinance or Law provision. If local code now requires a secondary water barrier or upgraded decking, that cost may be covered separately — it is not automatically included in RCV.
• Non-completion: If the insured does not repair the property, the carrier typically pays only ACV. The recoverable depreciation is not owed on unrepaired losses under most policy language.
• Partial losses: On a partial repair, RCV applies only to the repaired portion. Adjusters should document the scope boundary clearly to avoid disputes when the insured later repairs additional damage.

RCV vs. ACV policies

Not every policy is RCV. Older or lower-premium policies may be written on an ACV-only basis, meaning depreciation is never recovered regardless of repair completion. Confirming the policy form before setting reserve is step one — settling an ACV-only claim at RCV is an errors-and-omissions event waiting to happen.

RCV is the most consequential number in most property claims. Getting the scope right is how you get the number right.