The Two Most Common Types Of Homeowner’s Insurance
The two most common types of homeowner’s insurance policies are ACV and RCV. To help you get the most out of your investment in homeowner’s insurance, we’re breaking down the most important differences and considerations about these two types of policies and how they affect homeowners in Oklahoma.
ACV Insurance Policies
ACV stands for “actual cost value” and it covers, you guessed it, the actual value of
your roof at the time of the damage.
Key Points About ACV Policies
ACV policies cover the cost of what your roof is worth today. That amount may not be the same as the cost of a new roof. Why? Depreciation.
If your roof is only a year or two old, an ACV policy will cover almost all of the replacement cost.
If your roof is 10+ years old, most of its useful life will be over, meaning that its “actual value” is low and your insurance will not pay very much to help cover the replacement.
The monthly insurance premiums are lower for an ACV policy than an RCV policy.
RCV Insurance Policies
RCV stands for “replacement cost value” and it covers the cost to replace your roof with one of similar quality.
Key Points about RCV Policies
The monthly premiums are usually a bit higher for RCV policies than ACV policies.
This type of policy DOES NOT factor depreciation into your claim payment.
This policy covers the cost of replacing your roof with one of similar quality. If your old roof is low quality, it will only pay for the cost of a similar roof. If you decide to upgrade to a higher-quality roofing system, you’ll have to pay the additional cost yourself. BUT, if you have to file another claim in the future, it will pay for the higher quality roofing system next time.
A Tale of Two Policies
Let’s compare your out-of-pocket expense for a new roof with an ACV policy versus an RCV policy.
A new roof is usually about 10% of a home’s value. For a home worth $200,000, the roof would be valued at about $20,000.
Let’s assume that your current roof is 10 years old.
Your deductible for the insurance claim is $1,500.
Depreciation for a 10-year-old roof is about $13,000.
Here’s how your insurance payout could differ between the two types of policies:
Pay Attention to Your Policy
A word of caution: Make sure that you carefully review any policy updates your insurer sends you to make sure you’re getting the coverage you prefer. Some insurance companies automatically downgrade your RCV policy to an ACV policy once your roof celebrates its 10th birthday.
Whether you have an RCV policy or an ACV policy, our project managers will help you get the most out of your investment if you need a new roof. Get in touch to schedule your free roof inspection today.
