Two houses on the same street take the same hail. Both owners have homeowners insurance. Both have a $1,000 deductible. Both need the same $15,000 roof.
One household ends up with $14,000. The other ends up with $4,000.
That is not a hypothetical spread invented to make a point — it is NAIC's own worked example of the same loss settled two different ways (NAIC, Rebuilding After a Storm). The difference is a phrase on the declarations page that most people have never looked for, and it is worth more than several years of premium.
A note before you start. This is general education, not insurance advice. It describes how the ISO Homeowners 3 – Special Form (HO 00 03) handles loss settlement, which is the industry-standard structure — but most large carriers write their own proprietary forms, so treat this as the normal shape of the rules rather than a description of your policy. Where a state regulates depreciation or roof settlement, the article cites the rule; where a widely repeated claim turns out not to be supported by the regulatory record, it says so. Dollar examples are arithmetic on stated inputs, not figures from any real claim.
1. The two settlement bases, defined properly
Replacement cost value (RCV) pays what it costs to repair or replace the damaged property with new property of like kind and quality, at today's prices, with no deduction for age or condition.
Actual cash value (ACV) pays replacement cost minus depreciation — an allowance for how much of the item's useful life had already been consumed when it was damaged.
NAIC states both plainly: under replacement cost "your policy will pay the cost to repair or replace your damaged property without deducting for depreciation," and under actual cash value "your policy will pay the depreciated cost to repair or replace your damaged property."
Depreciation is normally calculated on a straight-line basis: the item's age against its expected useful life. A roof with a 30-year expected life that is 15 years old is 50% depreciated. Not because it is failing, and not because it was going to need replacing this year — simply because half its life is behind it.
That is the whole mechanism, and it is why the two households on the same street end up so far apart.
2. The $15,000 roof, worked twice
| Replacement cost | Actual cash value | |
|---|---|---|
| Cost to replace the roof | $15,000 | $15,000 |
| Depreciation (15-year-old, 30-year life) | $0 | −$10,000 |
| Settlement before deductible | $15,000 | $5,000 |
| Deductible | −$1,000 | −$1,000 |
| Paid to the household | $14,000 | $4,000 |
| Out of pocket to get a new roof | $1,000 | $11,000 |
The ACV household is not underinsured in any sense that appears on the declarations page. Their dwelling limit is fine. Their deductible is ordinary. They pay a lower premium and have done for years. And they are $10,000 short of a roof.
The premium difference between the two is real but modest. The claim difference is not modest at all, and it arrives exactly when the household has the least flexibility to absorb it.
Check what settlement basis your policy actually uses3. What the standard form does by default
This is the part that surprises people, so it is worth quoting.
The standard form's loss-settlement condition provides that personal property — along with awnings, carpeting, household appliances, outdoor antennas and outdoor equipment, structures that are not buildings, and grave markers — is settled "at actual cash value at the time of loss but not more than the amount required to repair or replace."
Read that again. Contents settle at ACV by default. Your furniture, clothing, electronics, and appliances are depreciated unless you bought an endorsement that says otherwise.
The building itself is treated differently. Coverages A and B settle at replacement cost, subject to an 80% coinsurance test — carry at least 80% of the full replacement cost of the building and you get replacement cost on a partial loss; carry less and the settlement is reduced by a ratio.
So the default policy is a mixed instrument: replacement cost on the structure, actual cash value on everything inside it. Wisconsin's insurance regulator says the same thing to consumers directly: coverage "only pays the current cash value of the item destroyed, unless you purchased replacement cost coverage" (WI OCI).
The fix is an endorsement — personal property replacement cost — and it is one of the highest-value additions on the menu.
4. Recoverable depreciation: why the first cheque is small
Here is the mechanic that generates the most confused phone calls, and it happens on policies that do have replacement cost coverage.
Most replacement-cost policies do not hand you the full replacement cost up front. They pay actual cash value first, and hold back the depreciation — the "recoverable depreciation" — releasing it only after you have actually done the work and submitted proof of the cost incurred.
On the $15,000 roof, a replacement-cost policyholder may well receive:
- First payment: $5,000 ACV less the $1,000 deductible = $4,000
- Roof is replaced; invoice submitted
- Second payment: the $10,000 of recoverable depreciation
The household ends up with the full $14,000. But the first cheque looks exactly like an ACV settlement, and a homeowner who does not know the second payment exists can conclude they were paid ACV on an RCV policy — or, worse, decide the claim is not worth pursuing and never do the work, which forfeits the $10,000 permanently.
Three practical consequences:
- You have to front the money. The contractor wants paying before the second payment arrives.
- There is a deadline. Policies impose a time limit on claiming recoverable depreciation, commonly six months to two years. Miss it and the holdback is gone.
- Do the work, keep the invoice. Recoverable depreciation is released against proof of actual expenditure, not an estimate.
5. Roof schedules: a third settlement basis
Some carriers apply something narrower than either RCV or ACV to roofs specifically: a roof surface payment schedule, which is a published table paying a fixed percentage of replacement cost by roof age and material.
These are real, they are filed and approved by state regulators, and Nevada's Department of Insurance publishes an approved example — American Family's form HO 88 02 01 14, "Roof Surface Payment Schedule" (NV DOI). Its architectural composition shingle table runs:
| Roof age | Percentage paid |
|---|---|
| Year 0 | 100% |
| Year 10 | 70% |
| Year 15 | 55% |
| Year 25+ | 25% (floor) |
Other materials fare worse. Other composition and solar roofing drops to 60% at year 10 and floors at 25% from year 19. Built-up tar and rubber roofs drop to 50% at year 10 and floor at 25% from year 15.
Two details in that form worth noting: the schedule expressly absorbs "overhead, profit, labor, taxes, and fees," and total losses are carved out of it.
That is one approved carrier form in one state, not a national rule — but it is a concrete illustration of what a schedule looks like when it applies, and it is the kind of provision that is invisible until a roof claim.
The claim you should be sceptical of
You will read in a number of places that "several states restrict ACV roof schedules." The regulatory record does not support it. Searching state insurance department bulletin indexes turns up nothing disapproving roof surfacing payment schedules as such — they are a form-filing and approval matter, handled state by state, not the subject of dedicated prohibitions.
Florida's is the most-cited example and it never became law. A roof surface reimbursement schedule appears in a committee substitute for SB 76 (2021). It does not appear in the enrolled bill, and the phrase is absent from Fla. Stat. § 627.7011 in the 2021, 2022, and 2025 editions.
What Florida law does say about roofs is worth knowing on its own terms. Section 627.7011(5)(b) bars an insurer from refusing to issue or renew a homeowners policy on a residential structure "with a roof that is less than 15 years old solely because of the age of the roof." And § 627.7011(3)(a) permits an insurer, where a roof deductible applies, to limit the claim payment on the roof to actual cash value until it receives reasonable proof the policyholder paid the roof deductible.
6. The other half: what depreciation does to a contents claim
Roofs get the attention because the numbers are large and the depreciation is easy to picture. But the standard form settles roofs at replacement cost and contents at actual cash value, so for most households the bigger exposure runs the other way.
Here is a modest, unremarkable household inventory settled both ways. Expected lives are ordinary industry figures; ages are typical for a family a decade into a house.
| Item | Age | Expected life | Replacement cost | ACV settlement |
|---|---|---|---|---|
| Sofa and two armchairs | 9 yrs | 15 yrs | $4,200 | $1,680 |
| Dining table and six chairs | 12 yrs | 20 yrs | $3,100 | $1,240 |
| Two beds and mattresses | 8 yrs | 12 yrs | $3,800 | $1,267 |
| Washer and dryer | 7 yrs | 12 yrs | $2,400 | $1,000 |
| Refrigerator | 6 yrs | 14 yrs | $2,600 | $1,486 |
| Television and audio | 5 yrs | 8 yrs | $1,900 | $712 |
| Clothing, four people | ~5 yrs | 8 yrs | $11,000 | $4,125 |
| Linens, towels, kitchenware | ~7 yrs | 10 yrs | $4,500 | $1,350 |
| Tools and garage | 10 yrs | 20 yrs | $2,900 | $1,450 |
| Books, decor, miscellaneous | ~8 yrs | 15 yrs | $3,600 | $1,680 |
| Total | $40,000 | $15,990 |
The household is $24,010 apart on a $40,000 loss, and they have not hit a sub-limit, a policy limit, or a coinsurance penalty. Every item was covered. The settlement was simply computed on what nine-year-old furniture is worth rather than what furniture costs.
Two things this table makes visible that the roof example does not.
Clothing is the largest line and depreciates fastest. It is also the category people most consistently omit from any estimate of what their contents are worth, because nobody has ever added it up. Four people's wardrobes at replacement cost is a serious number; at actual cash value it is a fraction of one.
The percentages are worse for the things you replace soonest. A five-year-old television on an eight-year life pays 37.5% of its replacement cost. The items with the longest lives — furniture, tools — hold their value best, and they are the ones you are least urgent about replacing.
This is why replacement cost on contents is the endorsement to ask about first. The annual cost is modest; the difference on a total loss is most of a year's income.
One more thing the table understates. Depreciation is applied item by item, which means the settlement depends on an inventory — a list of what you owned, how old it was, and what it would cost new. After a total loss most households can reconstruct well under half of what they owned from memory, and the half nobody remembers is simply never claimed, at either settlement basis. The endorsement decides the rate you are paid at; the inventory decides how many items get paid for at all. Both matter, and only one of them costs anything.
7. What states actually regulate: depreciation itself
The real regulatory activity is not about roof schedules. It is about what may be depreciated at all, and here the rules are concrete.
Washington is the clearest. WAC 284-20-010 provides that "the expense of labor necessary to repair, rebuild, or replace covered property is not a component of physical depreciation" (Washington Administrative Code). Materials wear out; the labour to install them does not, so labour may not be depreciated. On a roof, where labour is a large share of the total, that single rule changes the settlement substantially.
Texas regulates disclosure rather than the calculation. TDI Bulletin B-0022-20 requires extra explanation in the notice of material change when a policy switches from replacement cost to actual cash value — at least 30 days before renewal, in plain language, conspicuously — and requires forms to be re-filed if an optional roof-ACV endorsement becomes mandatory (TDI).
Several other states have issued bulletins on labour depreciation and on matching — whether an insurer must replace undamaged adjacent material so the repair matches — with varying strictness. The pattern across all of them is the same: regulators have concentrated on how depreciation is computed and disclosed, not on banning particular settlement structures.
8. What to actually do about it
Find the phrase. On your declarations page, look for "replacement cost," "actual cash value," "RCV," or "ACV" against personal property specifically, and separately against the roof. They can differ. Roof-specific ACV language is often a separate endorsement listed by form number.
Price the upgrade. Ask what replacement cost on contents costs annually. Compare that against the depreciation on a total contents loss — for most households, several years of premium against tens of thousands of dollars of settlement.
Ask about the roof specifically. "Does my policy settle the roof at replacement cost or actual cash value, and is there a payment schedule?" is a direct question with a direct answer. If a schedule applies, ask for the table.
Understand your own roof's age. Under any depreciated basis, the roof's age is the single variable driving the settlement. A roof approaching the end of its schedule is worth knowing about before a storm, not after.
Ask what your extended replacement cost options are. Distinct from this whole discussion, and worth asking in the same conversation: extended or guaranteed replacement cost pays above your dwelling limit when rebuild costs exceed it, turning Coverage A from a ceiling into a starting point.
If you have an RCV policy and a claim, do the work. Recoverable depreciation is only recoverable if you repair and submit the invoice inside the policy's time limit. Leaving it is leaving money.
Frequently asked questions
Which do I have? Check the declarations page for "replacement cost" or "actual cash value" against personal property, and separately against the dwelling and the roof. They frequently differ within one policy — replacement cost on the structure, actual cash value on contents is the standard form's own default.
Why would anyone choose actual cash value? Lower premium. That is the entire trade, and it is a real one for a household that would rather pay less now and accept a depreciated settlement later. What makes it a problem is when nobody made the choice — when it is simply what the quote defaulted to.
Is depreciation negotiable? The method and the inputs can be discussed — the assumed useful life, the roof's actual age, its condition before the loss. In states like Washington, whether labour may be depreciated at all is settled by regulation rather than negotiation. Documentation of the property's pre-loss condition is what gives you something to discuss.
What is recoverable depreciation? The portion of a replacement-cost settlement held back until you actually complete the repair and submit proof. It is why the first cheque on an RCV claim can look like an ACV settlement, and it expires if you never do the work.
Do any states ban actual-cash-value roof settlement? Not as such. Roof schedules are a form-filing matter approved state by state, and the widely repeated claim that several states restrict them is not supported by the regulatory record. Florida's frequently cited schedule was proposed in SB 76 and never enacted.
Does replacement cost mean I get a brand-new house after a total loss? It means you are paid the cost to repair or replace with like kind and quality, up to your limit — which is why the limit matters as much as the settlement basis. It also does not include the cost of complying with building codes adopted since the house was built; that is ordinance-or-law coverage, which is separate and separately limited.
My roof is 22 years old. Is it worth insuring at all? It is worth insuring the house. Whether the roof will produce a meaningful settlement under a depreciated basis is a different question, and at 22 years the honest answer under most schedules is: not much. That is an argument for knowing your settlement basis before the storm, and for treating roof replacement as a maintenance budget item rather than an insurance expectation.
What to do next
The declarations page will not tell you whether your dwelling limit is adequate — it just states the number. The replacement cost calculator works out what your house would actually cost to rebuild from sourced per-square-foot construction costs for your state, tests it against the 80% coinsurance threshold, and shows what a shortfall would cost on a partial claim.
- Coverage check — all six limits against what a standard policy carries
- Deductible comparison — what a percentage storm deductible costs in dollars
- What homeowners insurance doesn't cover — the exclusions sitting behind every settlement
- The six coverages on a homeowners policy — where contents coverage sits in the structure
- How our figures are sourced
This article is general education about how insurance settlements are structured, not insurance advice, and no policy or claim is being interpreted for any particular reader. It describes the ISO Homeowners 3 – Special Form; most large carriers write proprietary forms, and settlement terms vary by carrier, endorsement, and state. The Nevada roof schedule cited is one approved carrier form in one state, offered as an illustration rather than a national norm. Take specific questions about your own policy or claim to a licensed agent, a public adjuster, or an attorney in your state.