When would an RC policy pay more than the ACV of an item?

A Replacement Cost (RC) policy pays more than the Actual Cash Value (ACV) of an item when that item is completely damaged and replaced. This is because RC coverage is designed to restore the insured to the pre-loss condition by covering the cost of replacing the lost or damaged property without accounting for depreciation.

In contrast, ACV covers only the current value of the item, which takes depreciation into account. For example, if a television that originally cost $1,000 has depreciated significantly after several years, an ACV policy would only reimburse the current market value after depreciation. However, with an RC policy, if that television needs to be replaced entirely, the insured would receive the full cost to purchase a new equivalent model at current prices, regardless of how much value was lost over time. This is particularly beneficial for replacing items that are completely damaged, ensuring that the policyholder can purchase a brand-new item that serves the same purpose as the original.