If your home was damaged by a storm and you recently received an insurance estimate, you may have opened the document and immediately wondered what half of it means.
ACV. RCV. Depreciation. Deductible. Supplements. Line items.
For homeowners who do not deal with insurance claims every day, the terminology can feel overwhelming.
The most important thing to understand is that an insurance estimate is more than just a number at the bottom of the page. It outlines what the insurance company has included in the approved scope of work, how the claim has been valued, and what payments may be available as repairs move forward.
Understanding the basic terminology can make the rest of the process much easier.
What Is ACV?
ACV stands for Actual Cash Value.
Generally, ACV is the estimated replacement cost of damaged property minus depreciation for factors such as age, condition, and wear.
For example, if a roofing component has an estimated replacement cost but has already experienced years of normal aging, depreciation may be deducted when the insurance company calculates the initial value of that damaged item.
That is one reason the first payment you receive may be lower than the total amount shown on the insurance estimate.
What Is RCV?
RCV stands for Replacement Cost Value.
Replacement Cost Value represents the estimated cost to replace damaged property with new materials of similar kind and quality, subject to the terms and limits of the insurance policy.
In simple terms:
RCV = estimated replacement cost
ACV = replacement cost minus depreciation
That difference is important because some policies allow depreciation to be recovered after the work is completed and the required documentation is provided.
What Is Depreciation?
Depreciation is an amount the insurance company subtracts based on factors such as the age or condition of the damaged property.
Depending on the policy, some or all of that depreciation may be recoverable after repairs are completed.
This is one of the most common sources of confusion for homeowners because the estimate may show a much higher total replacement cost than the amount of the initial insurance payment.
That does not necessarily mean something was removed from the claim. It may simply mean a portion of the claim payment is being withheld as depreciation until certain requirements are met.
What Is Recoverable Depreciation?
Recoverable depreciation is money that may be withheld from the initial insurance payment and later released after the homeowner completes the repairs and provides the documentation required by the insurance company.
Depending on the claim and policy, documentation may include things such as:
- Contractor invoices
- Completion documentation
- Photographs
- Receipts
- Other records showing that repairs were completed
Because requirements can vary, homeowners should understand what their insurance company will require before assuming additional funds will automatically be released.
Why Is My First Insurance Check Less Than the Total Estimate?
This is another very common question.
The initial payment may represent the ACV amount after depreciation and the deductible have been taken into account. Additional funds may become available later depending on the policy and completion of the repairs.
This is why looking only at the first check can create confusion.
A claim estimate may include multiple figures showing replacement cost, depreciation, deductible, and initial payment amounts.
Before making decisions based solely on the first payment, make sure you understand how those numbers relate to one another.
How Does My Deductible Work?
Your deductible is the portion of the covered loss that you are responsible for paying.
It is generally subtracted from the insurance company’s payment rather than being paid directly to the insurance company.
For example, if your policy has a deductible, that amount is generally part of the homeowner’s responsibility when the covered repairs are completed.
Homeowners should understand their deductible before entering into a construction agreement so there is no confusion later about the total project cost.
What Is an Insurance Supplement?
A supplement is a request for additional payment when covered damage, necessary repair work, code-related items, or pricing may have been missed or underestimated in the original insurance estimate.
An insurance adjuster may inspect a property and prepare an estimate based on what was visible and documented at that time.
A contractor may later identify additional construction requirements or differences in the scope needed to complete the repairs properly.
When that happens, documentation can be provided to the insurance company for additional review.
A supplement is not automatically approved. It is a request for the insurance company to review additional information and determine whether additional payment is appropriate.
Why Is My Contractor’s Estimate Different From the Insurance Estimate?
Seeing two different estimates does not automatically mean that either one is wrong.
Insurance estimates and contractor estimates may use different:
- Pricing
- Material quantities
- Labor assumptions
- Measurements
- Repair methods
- Scopes of work
The important question is whether the approved insurance scope includes the covered work reasonably necessary to restore the property.
A contractor may also identify construction requirements that were not included in the original insurance estimate.
That is why it can be helpful to have the insurance scope reviewed alongside the contractor’s proposed scope of work.
What Does “Replacement Cost” Actually Mean?
Replacement cost generally refers to the cost to repair or replace damaged property using materials of similar kind and quality without subtracting depreciation, subject to the terms of the insurance policy.
That does not necessarily mean every homeowner will automatically receive the full replacement-cost amount immediately.
The timing and amount of payments can depend on the policy, depreciation, deductibles, completion of repairs, and the documentation required by the insurance company.
What If I Don’t Understand a Line Item on the Estimate?
Ask questions.
Insurance estimates can include dozens or even hundreds of individual line items covering materials, labor, removal, disposal, accessories, flashing, ventilation, gutters, siding, interior repairs, and other components.
You should understand what is included before signing contracts or authorizing work.
Understanding the scope helps you know what the insurance company has approved and whether something may be missing.
If you see something you do not understand, ask the insurance company or your contractor to explain what that line item represents.
Your Insurance Estimate Is the Beginning of the Conversation
Receiving the estimate does not necessarily mean every detail of the project has been finalized.
The estimate gives everyone involved a starting point for understanding the approved scope of work.
From there, the homeowner and contractor can review the property, compare the proposed construction scope with the insurance estimate, and identify questions or additional documentation that may need to be addressed.
The goal should be to understand what work has been included, what the homeowner is responsible for, and what steps still need to occur before the project is complete.
Need Help Understanding the Construction Side of Your Insurance Estimate?
If your home was damaged by a storm and you are unsure what your insurance estimate includes, American Quality Homes can help you review the construction-related scope and determine whether the work listed matches what may be needed to properly repair your home.
We can help explain construction requirements, document damage, review repair considerations, and point out items that may need additional discussion with your insurance company.
For questions, contact American Quality Homes at 920-659-0012.
Come home to quality.
Next in the Series: Think Damage Was Missed?
Your first insurance estimate may not always include every damaged component of the property.
Storm damage can sometimes be difficult to identify during the initial inspection, especially when it involves roofing, siding, gutters, windows, flashing, attic areas, or other components that are not immediately obvious.
In the next article, we explain what homeowners can do if they believe storm damage was overlooked, what types of damage are commonly missed, and how additional documentation can help support another review.
Next Article: Think Your Insurance Adjuster Missed Storm Damage? Here’s What to Do
