Key takeaways
- Replacement cost usually pays twice. The depreciated amount first, then the withheld portion — the recoverable depreciation — once repairs are complete and proved.
- If you never do the work, you never get the second payment. A great many people bank the first check without knowing a second was available.
- There is a deadline for claiming it, set by your policy and sometimes by your state. Miss it and the money is simply not paid.
- One policy can use different bases for different things. An ACV roof endorsement can sit on an otherwise replacement-cost policy.
- Market value is not the contractual settlement basis — but do not assume it is irrelevant. There is no national definition of actual cash value; it is state law, and in fair-market-value and broad-evidence states market value is one of the things a court weighs.
Not sure which basis your policy uses? A licensed agent can read the declarations page with you.
Call [PENDING][PENDING]. Calls are answered by [PENDING], a licensed insurance agency (NPN [PENDING]). HomeCoverDesk is not affiliated with any insurer. Calls may be recorded or monitored for quality and training purposes. Our partner does not offer every insurer or every product available in your state.The difference, in one table
Both bases start from the same number — what it would cost to replace the damaged property today. They diverge on whether age is subtracted from it.
| Actual cash value (ACV) | Replacement cost (RCV) | |
|---|---|---|
| What it pays | What the item was worth immediately before the loss — replacement cost minus depreciation | What it costs to replace it today with like kind and quality, without deduction for depreciation |
| Number of payments | One | Usually two. The depreciated amount first, the rest after the work is done |
| Do you have to do the repair? | No. The money is yours either way | Yes, to receive the second payment. No repair, no recoverable depreciation |
| Effect of age | Large. A 15-year-old item may be worth a small fraction of its replacement cost | None on the payable amount, though age may affect whether RCV is offered at all |
| Premium | Lower | Higher |
| Typical use | Roofs on older homes, contents on some policies, mobile homes, some surplus-lines and FAIR Plan policies | The dwelling on most standard policies, and contents where the endorsement has been added |
The part almost nobody knows: replacement cost pays twice
This is the single most useful thing on this page, and it is the reason the page exists.
On a replacement-cost policy, the insurer does not usually hand over the full replacement cost up front. It pays the depreciated amount first and withholds the rest. That withheld portion — the recoverable depreciation — is released only when you have completed the repair and submitted proof of what you spent.
| Stage | What happens | What it depends on |
|---|---|---|
| 1. Loss assessed | The adjuster sets the replacement cost of the damaged property | The scope of damage recorded. If the scope is short, everything downstream is short |
| 2. Depreciation applied | Age and condition are deducted to reach actual cash value | The depreciation method, and — contested in some states — whether labor is depreciated as well as materials |
| 3. First payment issued | You receive the actual cash value, less your deductible | Nothing further. This check arrives whether or not you repair |
| 4. Repair or replacement completed | You do the work and pay for it | Your ability to fund the gap, which is the practical obstacle for most people |
| 5. Proof submitted | Invoices and receipts go to the insurer | A deadline set by your policy — commonly somewhere between 180 days and two years, and it varies |
| 6. Second payment issued | You receive the recoverable depreciation that was withheld at stage 3 | Having completed stages 4 and 5 inside the deadline. Miss it and the money is simply not paid |
| Basis | Replacement cost | Depreciation | Deductible | First payment | Possible second payment |
|---|---|---|---|---|---|
| Replacement cost, repair completed | $9,000 | $5,400 | $1,000 | $2,600 | $5,400 |
| Replacement cost, repair not completed | $9,000 | $5,400 | $1,000 | $2,600 | $0 |
| Actual cash value | $9,000 | $5,400 | $1,000 | $2,600 | None — depreciation is not recoverable |
If you are holding a settlement statement you do not understand, talking it through with a licensed agent costs nothing.
Call [PENDING][PENDING]. Calls are answered by [PENDING], a licensed insurance agency (NPN [PENDING]). HomeCoverDesk is not affiliated with any insurer. Calls may be recorded or monitored for quality and training purposes. Our partner does not offer every insurer or every product available in your state.Which basis applies to which part of your policy
People tend to assume a policy has one settlement basis. Many have several, applied to different things, and the combination is set out on the declarations page rather than announced anywhere.
| Part of the policy | Commonly settled on | Worth checking |
|---|---|---|
| Coverage A — the dwelling | Replacement cost | Whether extended or guaranteed replacement cost is included above the limit |
| The roof specifically | Replacement cost or ACV, separately | An ACV roof endorsement or a roof surfacing payment schedule can sit on an otherwise replacement-cost policy. This surprises people |
| Coverage B — other structures | Usually the same basis as the dwelling | Fences and detached garages are sometimes treated differently |
| Coverage C — personal property | ACV by default on many policies | Replacement cost on contents is frequently an optional endorsement you have to have bought |
| Specific categories within contents | Often ACV regardless | Awnings, carpeting, appliances and antennas are commonly carved out |
| Scheduled items | Agreed value or stated amount | A different mechanism again — the value is fixed when the item is scheduled |
The roof is where this matters most, because a roof can be carved out of an otherwise replacement-cost policy by a single endorsement. If your roof has any age on it, that line is the one to find. Our page on insuring a home with an older roof covers what triggers it and what the two different roof mechanisms are.
Reading your own settlement statement
The vocabulary on a settlement statement is not standardized, but the underlying distinction usually shows through.
| What the paperwork shows | What it usually means |
|---|---|
| A line reading “recoverable depreciation” | Recoverable. A second payment is available once the work is done and proved inside the deadline |
| A line reading “non-recoverable depreciation” | Not recoverable. That amount will not be paid |
| “Replacement cost value” and “actual cash value” shown as two separate totals | The difference between them is the depreciation being withheld — usually recoverable |
| Only one total, described as actual cash value | Likely an ACV policy or endorsement, with nothing further to claim |
| A percentage applied by roof age | A roof surfacing payment schedule. Filed with the state, mechanical, and not recoverable |
If the document does not make the basis clear, the insurer is generally required to explain it on request. Asking in writing for the replacement-cost value, the actual cash value, and the amount of depreciation withheld — stated separately — tends to resolve the ambiguity quickly.
Depreciation, and the part that is genuinely contested
Depreciation is usually calculated on a straight-line basis: an assumed service life for the item, reduced proportionally by its age. A roof with a 20-year assumed life, eight years old, might be depreciated by around 40%.
There is one aspect that is genuinely disputed rather than merely technical: whether labor can be depreciated as well as materials. Shingles wear out. The work of nailing them down does not. Whether an insurer may nonetheless depreciate the labor component has been litigated and legislated differently in different states, and it can move a settlement materially.
Six terms that sound alike
Most misreadings of a declarations page come from these being used interchangeably when they are not.
| Term | What it means |
|---|---|
| Actual cash value | Replacement cost less depreciation |
| Replacement cost | The cost to replace with like kind and quality, up to your limit |
| Extended replacement cost | Replacement cost plus a stated percentage above your Coverage A limit — commonly quoted between 10% and 50%, though we have found no published source for that range — ask what yours is — for when rebuilding costs more than the limit |
| Guaranteed replacement cost | The full cost to rebuild, without a percentage ceiling. Increasingly rare |
| Functional replacement cost | Replacement using modern, cheaper equivalents rather than like for like. Common on older and historic homes |
| Market value | Not the contractual settlement basis. What the property would sell for, including the land. Whether it bears on a claim depends on your state: under the broad evidence rule and in fair-market-value states it is one of the things a court weighs in fixing actual cash value |
The one worth singling out is market value, because it is the most common confusion of all. What a house would sell for includes the land, reflects the neighborhood and moves with the property market. None of that has anything to do with what it costs to rebuild the structure, which is what a claim pays.
Is replacement cost worth the extra premium?
That depends on the age of what is being insured and on whether you could fund a rebuild out of a depreciated settlement. Those are your circumstances, not ours to assess.
We are not going to give you a number for the price difference. You will find sites that do. The honest position is that it varies enormously by property, carrier and state, and we found no source we would stand behind. What we can say is that the difference in claim outcome is often far larger than the difference in premium — which is the calculation actually worth doing, with the figures from your own policy rather than an average from someone else's.
Corrections to this page (2)
We publish these rather than editing quietly. Our corrections policy explains how we handle errors.
- — We quoted Cal. Ins. Code § 2051 and cited it to FindLaw, a commercial publisher, on a page whose stated method is primary sources. It is now cited to California Legislative Information, the Legislative Counsel's own site. The statutory text is identical between the two — nothing we published was wrong — but the state site carries the enactment history (“Amended by Stats. 2019, Ch. 59, Sec. 1. (AB 188) Effective January 1, 2020”) that FindLaw omits, and a reader checking us should be sent to the document rather than to a copy of it.
- — We quoted California Insurance Code § 2051(b) as measuring actual cash value “less a fair and reasonable deduction for physical depreciation” and stopped there. The provision opens “Under an open policy that requires payment of actual cash value”, caps the measure at “the policy limit, whichever is less”, and continues: “A deduction for physical depreciation shall apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure.” That last sentence is a statutory limit on what may be depreciated at all, and we had omitted it.
Methodology and sources
Where the policy language comes from. Settlement provisions are described from the ISO Homeowners 3 — Special Form. ISO forms are copyrighted and ISO does not publish them, so we worked from a specimen a reader can actually open: HO 00 03 05 11, as filed with and published by the Maine Bureau of Insurance (form). An earlier version cited “standard ISO Homeowners program forms and carrier equivalents, reviewed in August 2026” — an unnamed proprietary document with no form number, no edition and no URL, which nobody could check. Individual policies vary, editions differ, and your own policy language governs.
The 2011 edition is not ISO's current one. The 2022 revision, HO 00 03 03 22, superseded it. We work from the 2011 form because it is the edition a state regulator publishes a specimen of, so a reader can open it and check us. The 2022 revision changed several things, including Section I Perils Insured Against; its most visible change is to the Coverage C special limits, which are covered on the HO-3 versus HO-5 page. Editions are adopted state by state and carrier by carrier, so the edition date printed on your own form decides which applies to you.
Actual cash value is state law, not a national definition. This page gives replacement cost less depreciation as the usual contractual formula, but courts take three approaches — that formula, fair market value, and the broad evidence rule — and some states fix it by statute. An earlier version stated the formula as universal and told readers market value “has no bearing on a claim”, which is untrue in broad-evidence and fair-market-value states.
The worked example is entirely illustrative. It uses a $9,000 replacement cost, a 20-year assumed service life, straight-line depreciation and a $1,000 deductible, chosen to demonstrate the arithmetic clearly. None of those figures is a typical amount or a guide to what anything is worth.
We have deliberately not published a figure for how much more a replacement-cost policy costs than an actual cash value one. We found no source we would stand behind, and the honest answer is that it varies by property, carrier and state. Where we do not know, we say so.
Deadlines for claiming recoverable depreciation, and the treatment of labor depreciation, both vary by policy and by state. We have not verified either state by state and have not published a table implying otherwise.
This page is reviewed on a fixed schedule. If you find an error, our corrections policy explains how we handle it.
Frequently asked questions
What is recoverable depreciation?
It is the portion of a replacement-cost settlement the insurer withholds from the first payment and releases after you complete the repair and submit proof of what you spent. If your settlement statement shows a line described as recoverable depreciation, that is money being held for you rather than money deducted from you.
How long do I have to claim recoverable depreciation?
Your policy sets a deadline and some states set one too. It is commonly somewhere between 180 days and two years from the date of loss — a range we give from common practice rather than from a published source. It varies enough that it is worth reading rather than assuming. Some insurers will extend it on request if the repair is genuinely delayed.
Do I have to repair to get the full replacement cost?
Generally yes. The second payment is conditioned on the work being done and proved. The first payment — the actual cash value portion — is yours either way.
Can one policy use both bases?
Yes, and many do. Replacement cost on the dwelling with actual cash value on contents is a common combination, and an ACV roof endorsement can sit on an otherwise replacement-cost policy. Check each line of the declarations page rather than assuming one basis covers everything.
Is actual cash value the same as market value?
They are not the same thing, but the flat answer we used to give here — that market value “has no bearing on what a claim pays” — was wrong in a large number of states, and we are correcting it rather than leaving it. Market value is what the whole property would sell for, land included. Actual cash value is about the damaged property. But there is no single national definition of ACV: it is a question of state law, and the three approaches courts take are replacement cost less depreciation, fair market value, and the “broad evidence rule”, under which a court considers everything bearing on value — market value included. Where your state uses fair market value or broad evidence, market value is not irrelevant at all. Some states fix it by statute instead: California Insurance Code § 2051(b) measures it, “under an open policy that requires payment of actual cash value”, as the cost to repair, rebuild or replace “less a fair and reasonable deduction for physical depreciation based upon its condition at the time of the injury or the policy limit, whichever is less”. And it limits what may be depreciated at all: “A deduction for physical depreciation shall apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure.” That last sentence is the one worth knowing, and an earlier version of this page left it out. Ask your own department which rule your state follows.
Can an insurer depreciate labor as well as materials?
This is genuinely contested and the answer depends on your state. It has been litigated and legislated differently in different places and it can change a settlement materially. Your department of insurance can tell you the position where you live, and you can ask an adjuster directly whether labor was depreciated in a given calculation.