ACV vs RCV: the one line in your policy that decides everything

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The line that decides everything

Somewhere on your declarations page, next to Coverage A — Dwelling, is a settlement basis. It says either replacement cost (RCV) or actual cash value (ACV). Sometimes it is buried instead in an endorsement number with a name like roof surfacing payment schedule or windstorm or hail loss to roof surfacing — actual cash value.

Replacement cost is what it costs today to put the roof back the way it was, using materials of like kind and quality, with no reduction for age. Actual cash value is that same number reduced for depreciation — the value the roof had actually used up before the hail arrived.

Both are settlement bases, not coverage. Under both, hail is a covered peril and the claim is adjusted the same way, with the same inspection and scope of loss. The difference shows up only in the arithmetic at the end, and on a fifteen-year-old roof that difference can be most of the cost of the job.

How depreciation is calculated on a roof

The usual method is straight-line depreciation against an expected service life. The adjuster's software holds a table of expected lives by material — three-tab asphalt, architectural asphalt, wood shake, tile, standing-seam metal — and applies:

depreciation = (age at date of loss / expected service life) × depreciable cost

Three details do most of the damage in practice.

• Which life is used. A shingle sold with a long limited warranty is not the same thing as a long expected service life in an adjuster's table. If the number used looks short for your material, ask what life was applied and why.
• Condition adjustment. Adjusters can and do adjust depreciation up or down from the straight-line figure for observed condition — heavy prior granule loss, curling, prior repairs. That is defensible, but it should be documented with photos, and you can ask to see them.
• Labor. Materials clearly wear out. Whether the labor to install them can be depreciated is contested; many carriers depreciate labor, and some states restrict or prohibit it. Look at your estimate: if the depreciation column has numbers on tear-off and installation lines, you are seeing labor depreciation.

Depreciation is also commonly capped, so that a very old roof is not depreciated to nothing. Where the cap sits varies by carrier and material and is not published in most policies.

To know your roof's age at the date of loss you need the date of loss, which is why the storm date matters even here. See how the date of loss is established.

Recoverable vs non-recoverable depreciation

This is the second word that matters.

Recoverable depreciation is money the insurer withholds from the first payment but will release once you complete the repairs and prove it. It is a holdback, not a deduction. This is what replacement cost coverage means in practice: you are paid ACV up front and the balance on completion.

Non-recoverable depreciation is gone. You never get it, no matter how promptly you do the work. It appears when the policy settles the roof on an ACV basis, when a roof payment schedule applies, or when a specific item falls outside replacement cost treatment.

Your estimate summary will usually spell it out with a line reading something like less non-recoverable depreciation. If you see that phrase on a policy you believed was replacement cost, go straight to the endorsements list — that is almost always a roof schedule at work.

The two-check process

On a replacement cost policy the money arrives in two parts.

1. The ACV check. Replacement cost of the agreed scope, minus depreciation, minus your wind and hail deductible. It comes after the scope is agreed, and it is deliberately not enough to pay for the job.
2. The depreciation release. After the work is finished, you send the final invoice and a certificate of completion. The insurer releases the withheld depreciation, plus any approved supplement, so that total payments equal the replacement cost of the agreed scope minus the deductible.

If the contractor's final bill is higher than the agreed scope, the second check does not automatically grow to match it. The insurer owes the replacement cost of the scope it agreed to — so the fix is to correct the scope by supplement, with line-item documentation, before you get to the end.

If your mortgage servicer is named as a loss payee, both drafts pass through them and are usually released in stages against inspections.

A worked example

Roof payment schedules and roof surfacing endorsements

These are endorsements that carve the roof out of the policy's replacement cost treatment while leaving the rest of the dwelling alone. They have become common in hail-exposed states, and they are the single biggest source of the sentence but my policy says replacement cost.

They come in two shapes:

Some versions apply only to certain materials — metal and tile are frequent targets, as are roofs past a stated age. Some are paired with a cosmetic damage exclusion, which is a different restriction with a similar effect on the payout. Read them together.

How to find out which one you have

Pull the declarations page from your policy documents or your carrier's portal. Then, in order:

1. Find Coverage A — Dwelling and look for the settlement basis stated next to it, or a footnote marker pointing to one.
2. Find the deductible block and check whether wind and hail carries its own deductible, and whether it is a flat amount or a percentage of Coverage A.
3. Find the forms and endorsements list — usually a column of form numbers with short titles. Read every title containing the words roof, surfacing, cosmetic, windstorm, or schedule.
4. Ask your agent, in writing: on what basis will a hail loss to my roof surfacing be settled, and which endorsement controls that? Keep the answer.

If the endorsement titles are opaque, request the full endorsement text. The carrier is required to have given it to you, and it is the part that actually governs.

What you can actually do about it

After a loss, the settlement basis is fixed — it is the policy in force on the date of loss that counts, so changing coverage now does not help this claim. What you can still influence on an open claim is the scope, the expected life used for depreciation, whether labor was depreciated, and whether any code upgrade coverage applies. Those are all worth challenging with documentation. If the answer is still no, the escalation options are here. Nothing on this page is legal advice.

Before your next renewal, three questions are worth asking your agent: what would replacement cost on the roof surfacing add to the premium; whether an impact-resistant covering earns a premium credit in your state; and whether the wind and hail deductible percentage still makes sense. Our materials guide covers which coverings hold up to hail and which ones carriers have started to schedule.

Common questions

Sources

Every factual claim on this page that comes from outside our own data is sourced below. Where a number is a model or a range rather than a measurement, it is labelled as one in the text.

• Insurance Information Institute — definitions of actual cash value, replacement cost and depreciation in homeowners policies
• NAIC — state insurance departments, which regulate settlement practices and approve policy forms and endorsements
• NAIC — model laws and consumer material on property claim settlement
• NOAA NCEI Severe Weather Data Inventory — hail dates used to establish date of loss and roof age at loss

More in insurance claims

• Hail insurance claims: the whole process
• How long you have to file, by state
• When your insurer says the damage is cosmetic
• Photographing hail damage: the 9 shots
• What a roof inspection should cost
• Storm-chasing roofers and what to ask them
• Your hail claim was denied. Now what?