What is actual cash value?

Answer:

Actual Cash Value (ACV), is insurance speak

that describes what something is worth after deductions for depreciation. In the insurance world—everything has a price. An insurer will either pay the full price for replacement of an item—or for the depreciated value of the insured item. So determining Actual Cash Value would work like this…

Fire envelopes your home and your trusty microwave is among the casualties. A homeowners insurance adjuster will examine your property and first determine the cost to replace the microwave and everything else you lost. The adjuster will also ask when all of your items were purchased. The adjuster uses depreciation guidelines that provide some help in determining the useful life of a given item. If you purchased your microwave 5 years ago and it’s supposed to last 10 years under ordinary circumstances—the insurance company will pay 50% of the replacement cost. This is the Actual Cash Value of the microwave or its ACV.

This isn’t the end of road for you when it comes to reimbursement though. If you have a replacement cost endorsement on your policy, you’ll receive the depreciation amount as well once you show that you’ve purchased a new microwave and that you spent at least as much as the adjuster allowed you.

Actual Cash Value doesn’t just apply to contents losses in homeowners insurance claims. Actual cash value comes into play for all insured losses. Third party claims, auto insurance claims, and homeowners insurance structural losses are all subject to depreciation and reimbursement based on Actual Cash Value.

Some companies offer automatic replacement cost policies if your property meets certain criteria—but for the most part—you’ll hear ACV bandied about whenever reimbursement for an insured loss is considered. With respect to third party claims—these losses are always based on ACV. If you’re a claimant on a loss rather than the insured—the insurance company responsible for paying the claim will always pay based on the depreciated value of the item rather than its replacement cost.


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