March 15, 2019

Defining Actual Cash Value for Property Insurance

Warm medium tone wood floor with aged look and knots

As you begin the process of placing your insurance policy with your broker you may discuss how property will be valued and replaced if you make an insurance claim. Often, two options are discussed: Actual Cash Value and Replacement Cost.


Actual Cash Value (typically abbreviated to ACV) is the calculation of the Replacement Cost of your property based on like, kind and quality less the depreciation of that property.

A great comparison is to think about selling your property through Facebook Marketplace or Craigslist. You have owned the item for a number of years and consider the following before setting a price:

  • How long you have had the item?
  • What is the normal life expectancy?
  • What price are others selling similar items for? Often the current market value of the item is a reliable indication of its ACV
  • What is the condition of the item?

Rarely is the item valued for the same price as it was purchased. It has depreciated in value from time and use.

How is Actual Cash Value Calculated?

Let’s say you experience a theft in your home and your five-year-old television is stolen along with a game console you have owned for one year. Your claim is approved and will be processed based on the Actual Cash Value terms of your insurance policy.

Two black game console remotes held by two people in front of a large television screen with a blurred image of a field on it

  1. The cost to replace your television brand new would be $2,000 and another $500 for the game console.
  2. An adjuster calculates the depreciation based on both industry and company standards
      • The TV is nearing the end of its expected seven-year lifespan, 30% of its life remains
      • The game console is at the beginning of its five-year life span, 80% of its life remains
  3. The claim will be calculated as follows:

$2,000 x 30% = $600
$500 x 80% = $400
Total $1,000

As part of the terms of your contract, a $500 deductible applies. So, the final payout for your claim is $500.

Actual Cash Value and Insurance policies

On a property insurance policy, Actual Cash Value may be the payment terms should a loss occur to your belongings, the structure, or any equipment. Your insurance broker is an excellent resource to help you understand how a claim is calculated on your policy and help you source the right coverage for your needs. A policy may have restrictions , so be sure to discuss any property, equipment or structure that is not typical to the ownership or maintenance of a home with your broker.

Related Posts