Insurance Claim Reality Series | Article 2 of 8
Estimated reading time: 5 minutes
One of the most common reactions policyholders have after receiving their first insurance check is disbelief.
“This won’t even come close to covering the repairs.”
For many, that moment is when frustration with the claims process truly begins. The issue is rarely a mistake in arithmetic. More often, it’s a misunderstanding of two critical insurance concepts: Actual Cash Value (ACV) and Replacement Cost Value (RCV).
Understanding the difference between these terms — and how insurers apply them — can mean the difference between a fully funded recovery and thousands of dollars left on the table.
What Is Actual Cash Value (ACV)?
Actual Cash Value is generally defined as the cost to repair or replace damaged property minus depreciation. Depreciation accounts for age, wear and tear, and condition at the time of loss.
In practice, this means:
- Older roofs, flooring, cabinets, and finishes are discounted
- Materials are valued as “used,” not new
- The initial payment reflects what the insurer believes the damaged property was worth immediately before the loss
ACV is often the first payment issued on a claim — even when the policy provides replacement cost coverage.
What Is Replacement Cost Value (RCV)?
Replacement Cost Value represents the cost to repair or replace damaged property with materials of like kind and quality without deducting for depreciation.
Under many policies:
- The insurer issues ACV first
- The difference between ACV and RCV is withheld as recoverable depreciation
- That withheld amount is released only after repairs are completed and properly documented
This structure places much of the financial burden on the policyholder upfront — a reality that many are unprepared for.
Why the First Check Is Almost Always Lower Than Expected
Policyholders are often told, “You’ll get the rest after repairs,” but several factors complicate that promise:
- Depreciation may be overstated – the discounted amounts assessed by the insurance company or adjuster are based on their internal tables for calculation. At times, this is a straight line calculation (i.e. the roof shingles are 15 years old so the materials are discounted as having been used for 15 years.) Other times it is calculated as a percentage according to internal unpublished guidelines. Getting an accurate depreciation calculation is a skill unto itself and it is rarely achieved with the initial claim payment.
- The scope of damage may be incomplete – the estimate scope or repair price could be for amounts lesser than actual repair costs. What this means is the insurance company has calculated an amount they agree upon (as “undisputed damages”) and payment is issued under those guidelines. As the claim administration gets closer to its completion, the adjuster may increase the scope or pricing to be more in line with the actual costs.
- Repair costs may exceed the insurer’s estimate – as above, if the scope or the price of repairs has not been fully negotiated, the initial claim payment will reflect the partial agreement instead of the final anticipated costs.
- Policy deadlines may limit recovery if repairs are delayed – this can be somewhat tricky especially for policyholders new to the insurance process. Insurance company policies typically outline a date in which repairs must be completed in order to be eligible to receive all of the funds. For example, some insurance policies may require repairs to be completed within 180 days of the date of the payment. Others may allow for up to 2 years from the date damage occurred. See the article “When “Too Late” Isn’t Fair: Allstate’s Holdback Refusals And Ohio’s 60-Day Notice Rule” for more information on this topic.
As a result, some policyholders never recover the full replacement cost they believed their policy guaranteed.
The Financial Catch for Policyholders
Many people assume they can simply pay contractors with insurance proceeds as the claim progresses. In reality, the ACV/RCV structure often requires policyholders to:
- Front repair costs
- Secure financing or loans
- Delay repairs due to insufficient funds
- Or accept substandard repairs to stay within the ACV payment
This is one of the most common pressure points where claims stall or settlements fall short.
Why ACV and RCV Disputes Are So Common
Disagreements frequently arise over:
- The amount of depreciation applied
- Whether certain items qualify for replacement cost
- Whether repairs were completed “properly”
- Whether documentation meets insurer requirements
Without careful documentation and policy interpretation, recoverable depreciation can quietly become unrecovered depreciation.
How Professional Claim Advocacy Can Help
Public insurance adjusters often assist policyholders by:
- Reviewing depreciation calculations for accuracy
- Ensuring all damaged items are included in the claim scope
- Coordinating documentation needed to release withheld funds
- Identifying policy provisions that affect depreciation recovery
This is not about inflating claims — it’s about ensuring the claim reflects the true cost of repair under the policy.
What Policyholders Should Do Early
If your policy includes replacement cost coverage:
- Ask how depreciation is calculated
- Track deadlines tied to repair completion
- Keep all invoices, photos, and contracts
- Avoid assuming the first payment reflects the full value of the loss
Understanding ACV and RCV early can prevent costly surprises later in the claim.
What’s Coming Next
In Article 3, we’ll examine the insurance claim deadlines most policyholders never see coming — and how missing just one can jeopardize coverage even after a valid loss.
Disclaimer
Green Public Insurance Adjusting and its staff members are not attorneys and do not provide legal advice. This article is for general educational purposes only. Policyholders should consult qualified legal counsel for legal questions related to insurance coverage, contracts, or claim disputes.
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