What is ACV, Actual Cash Value?
Have you ever had to experience an insurance claim? If so, you may have felt a little confused by all of the terms and abbreviations that you will find on insurance claim paperwork.
Words like: deductible, RCV, ACV, depreciation, overhead and profit, and PWI are just a few of these terms.
In today’s article, I want to explain one of the most common abbreviations: ACV. This article is not intended to sway your opinion or be any kind of framework for you to purchase coverage for your home. We always recommend you consult with your insurance agent for that. This is simply a basic explanation of what ACV is from a roofer’s professional opinion.
What is Actual Cash Value?
When a claim is filed, an adjuster has to come out and assess the damage to your property. During this process, he/she also has to assign depreciation to items that are depreciated. For example, If a roof is a 20 year shingle and it’s roughly 10 years old, then it will be depreciated by 50%. The amount left after the depreciation is left out is called the Actual Cash Value of the roof. Easily stated as the amount that the roof is currently worth in the present time, not how much it is to replace it completely.
When is ACV Paid Out?
After the adjuster determines the age of the affected materials and depreciated it accordingly, the ACV portion will then be paid out before work is started on your home because it is the current value that the insurance companies owes you for what was damaged. For most policies, this is the first payment in a series of payments that the insurance company will pay out. The second and sometimes last payment is the amount that was initially deducted by depreciating the roof. This ACV payment, along with your deductible, is usually used as a down payment to the contractor so that he/she can purchase materials and begin the work on your home. Once work is completed, the contractor may have to submit a Certificate of Completion and an invoice to get the depreciation portion paid out. This is the reason these payments are split up is so that insurance companies can have proof that the work is being completed before they pay out for the entire claim.
What is an ACV-Only Policy?
However, there are policies that will only ever pay for the cash value of the roof and you will not receive the additional depreciated amount. This is called an “ACV-only” policy. There are different situations where these make sense, but it ultimately depends on your goals, as a property owner, and how much coverage you want. Some insurance carriers will mostly sell ACV-only policies for roofs, while other sell mostly replacement cost policies for roofs, so be sure you have that conversation with your agent.
Many times, we have clients who aren’t fully aware that they have an ACV-only policy, so they end up being surprised when their insurance company isn’t paying the complete cost to replace their damaged roofs. We aren’t saying that ACV-only polices are bad because they do have their place in the insurance world. However, we do recommend you have a policy review with your insurance agent to be sure your policy covers what you want it to cover should a claim happen to your home.
At Restoration Roofing we have the experience and expertise to help you with a detailed inspection report and filing your insurance claim. To get in touch with one of our project managers, give us a call at 901-854-3402 or click here to set up a free inspection. We offer free inspections that are easy and completed quickly. Make sure to follow us on Facebook and Instagram for more tips on taking care of your Memphis roof claims.
