RCV vs. ACV Insurance: What Every Rental Property Owner Should Know

When you own a rental property, protecting your investment with the right insurance coverage is critical. Two common policy options, Replacement Cost Value (RCV) and Actual Cash Value (ACV), can dramatically impact your claim payouts after a loss. Understanding the difference between RCV vs ACV insurance could be the key to safeguarding both your property and your rental income.

Understanding the Basics: RCV vs ACV Insurance

Replacement Cost Value (RCV)

RCV coverage pays to repair or replace damaged property with new materials of like kind and quality, without deducting for depreciation. This means your insurance covers the cost to restore the property to its previous condition, as long as you actually complete the repairs.

Example: If a storm destroys your 15-year-old roof and replacing it costs $20,000, an RCV policy would pay the full $20,000 (minus your deductible).

Actual Cash Value (ACV)

ACV coverage factors in depreciation. It pays the replacement cost minus the property’s loss in value due to age, wear, and tear. This results in a smaller payout.

Example: For that same roof, if it’s determined to have 40% of its useful life remaining, depreciation could be $12,000. Your ACV payout would be $8,000 (minus your deductible), leaving you to cover the rest.

Cost Differences in Premiums

• RCV: Higher premiums, often 10–30% more, because the insurer is taking on greater financial responsibility.

• ACV: Lower premiums, but potential for much higher out-of-pocket costs after a loss.

 

Policy Requirements You Should Know

Many RCV policies include a “recoverable depreciation” clause. You’ll first receive an ACV payment and then be reimbursed the difference once repairs are completed. Insurers often require this work to be done within a set time frame, commonly 180 days.

If you choose not to repair or replace, you may only receive the ACV amount.

Considerations for Rental Property Owners

When deciding between RCV and ACV, weigh these factors:

• Cash Flow & Reserves – Do you have the funds to cover large repair gaps if needed?

• Tenant Turnover Risk – Inability to repair quickly could mean extended vacancies.

• Lender Requirements – Many mortgage lenders require RCV coverage.

• Age of Property – Older properties depreciate faster, making ACV less generous.

• Market Value vs. Replacement Cost – RCV is based on rebuild cost, not market value.

When Each Option Makes Sense

• RCV: Best for owners who want maximum protection and minimal surprises when disaster strikes.

• ACV: Suitable for those with strong liquidity, high risk tolerance, or when the property’s age means significant upgrades are inevitable.

The Bottom Line

While ACV can save you money on premiums, RCV offers more robust protection and greater financial certainty when it comes time to repair or rebuild. For many rental property owners, that peace of mind outweighs the higher upfront cost.

Tip: Before making a decision, request side-by-side quotes from your insurer and run the numbers on a few real-world loss scenarios. The best choice often comes down to balancing cost, risk tolerance, and long-term property plans.

Our Investor Property Program is designed for residential rental property owners with 5 or more properties. Coverage is optimized to save real estate investors time and money, while offering policies designed with rental properties in mind. We would be happy to give you a quote to compare RCV and ACV options for the rental homes in your portfolio.