Actual Cash Value

Learn the definition and calculation of Actual Cash Value (ACV) in insurance, a term used to determine the value of an asset at the time of loss or damage.

What is Actual Cash Value (ACV)?

Has your basement recently flooded and damaged some of your household goods? Or has your garage been broken into, and your bicycle has been stolen? Having insurance will be the make-or-break difference between breaking your bank account to repair or replace your items.

Actual Cash Value, commonly abbreviated to ACV, is how insurers determine the process for personal property claims. However, if you are insured under Actual Cash Value, your insurance company may calculate your reimbursement cost using a different method than other coverages such as Replacement Cost Value.

The actual cash value of your property is calculated by taking away depreciation from the replacement cost.

If your property is secured for its ACV, this essentially means you will receive a payout equal to the amount it’s worth at the moment it’s lost and not what it costs to replace for a brand-new product.

Don’t Forget: Market Value and actual cash value are different. Typically, your home’s market value is valued a lot higher than your actual cash value as depreciation is not deducted.

How Does Actual Cash Value Work?

As previously mentioned, insurance companies will use Actual Cash Value to figure out how much they should pay a policyholder after the event of loss or damage to insured properties or vehicles.

Key Fact: There is no insurance policy that you can purchase called ACV insurance. That’s a misconception!

The actual cash value determined is not the same as the true value of the property or personal object that is insured.

If, for instance, your car is in an accident, your insurance company would only reimburse you for the actual cash value of your vehicle. They would total this figure by figuring out the car’s replacement cost and then taking away depreciation factors like wear and tear.

Bear in Mind: If you have replacement cost coverage, your insurance company will pay the total amount to replace the item with a similar new product.

Always examine and carefully read your policies. It will detail any maximum payout limits or deductibles that could combine with the actual cash value; this could make your reimbursement payout even lower than you anticipated.

How to Calculate Actual Cash Value?

Actual Cash Value, ACV is a popular choice for many homeowners as the premiums tend to be a lot lower than if you choose replacement costs coverage. However, understanding how the coverage is calculated is vital. This will stop any misconceptions if you have to file a claim.

Formula: Replacement Cost x (Expected lifespan – Current life span) / Expected life span= Actual Cash Value (R x (E-C) / E = ACV)

A windstorm causes severe damage to your roof and causes your surround sound system to break, which now needs to be replaced.

Your insurance company will figure out your payout for your surround sound system replacement cost and deduct the devaluation costs from your total claim’s payout.

So, for instance, your surround system is 5 years old, and you’re paid around $5,000 when you originally bought it. Your insurance company says a similar surround sound system would cost $6,000 to buy a brand new system which typically lasts around 10 years.


The method your insurer will use to figure out your payout is:

For this example, the calculation would look something like this: $6,000 x (10-5) /10= 3,000. therefore, you would only receive a payout of $3,000 from your insurance company, leaving you to pay the remaining $3,000 to replace your system.

What Information Will My Insurer Request?

When you are considering filing a claim for your damaged goods, you should expect your insurance company to ask you for the following:

  •      A clear description of the item, including makes and models if necessary
  •      Date of when you purchased the item/s
  •      The amount you paid for the item/s
  •      The rough replacement value of the same or similar item currently
  •      Photographs that clearly show your item/s condition
  •      Original receipts if you have them

You may not have the receipts for some smaller household items, but you should always keep the receipts for pricey items such as your TV set or surround sound systems.

Hot Tip: Each insurance company will have its criteria, but you can always speak to your claims adjuster and request a form with your insurance companies guidelines to help you gather your proof of loss paperwork.

Who Should Opt for Actual Cash Value Coverage?

Some people will find that insuring their property for its actual cash value is the most logical, and this coverage type is suited for people that meet one or more of these criteria:

  1. Your budget is limited and don’t want high premiums

Actual Cash Value cover is considered a less expensive option than replacement value. It will also keep your premiums reasonably low.

  1. You are happy with your DIY skills to make some of the repairs

If you are a confident DIYer, you may be able to complete some of the repairs yourself, so this will keep your cost lower and more affordable.

  1. Replacing your damaged property with older items or items that have been used doesn’t bother you.

If replacing your items with older items is not something that bothers you, then ACV coverage will also be more affordable.

Actual Cash Value vs. Replacement Cost Value

The two most common types of reimbursement coverages are Actual Cash Value and Replacement Cost Value – but the two differ and understanding what sets them apart is important before you decide what coverage you go for.

The main difference between the two is that ACV includes an insurance adjuster or claim adjuster. An insurance adjuster’s job is to figure out the depreciation charge using the age, type, and condition of the property before its damage. This figure will then be subtracted from the amount it would cost to replace the product.

Whereas replacement cost value will pay out the total amount of money, it would cost you to purchase a brand-new product of similar value. Naturally, receiving the full payout is a huge benefit so you can replace your damaged property in no time.

Remember: Although the payout methods seem generous for replacement cost plans, remember that this will make your premiums significantly higher than actual cash value plans.


Actual Cash Value, commonly abbreviated to ACV, is a way that insurers determine the process for personal property claims.

A claim adjuster, also known as an insurance adjuster, is the individual who works out the depreciation charges to determine your actual cash value payout. This figure is calculated using the type, condition of the item, and the age of your project.

It’s important to know what specific details your insurer will request from you if you file a claim, such as a description of your item, the amount you paid, and when you purchased each item.

Key Insight: Always keep hold of your receipts, mainly if the item is expensive such as TVs.

Thoroughly read through your insurance policy to determine which coverage you are protected against, as you don’t want any surprises when you see your payout with depreciation figures subtracted.

Look out for any maximum payout limits, or deductibles listed within your policy, as this can also make your actual cash value reimbursement significantly lower.

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