Actual cash value
Actual cash value, or ACV, is what covered property is worth at the time of loss after depreciation for age, wear and condition. An ACV claim generally pays the repair or replacement amount less depreciation and the deductible, up to the policy limit. The policy, an endorsement or state law can set a different method.
Also called: acv
If a policy settles a loss at ACV, the payment starts with the cost to repair or replace the item and then subtracts depreciation and your deductible. The result is usually lower than the price of a new item, and the gap is yours to cover. Whether a given item is settled at ACV or at replacement cost depends on the policy, and different items in the same policy can use different methods.
How an ACV payment is worked out
The Texas Department of Insurance gives a dated example of a $10,000 roof loss on a home insured for $200,000 with a 2 percent deductible, which is $4,000. The only thing that changes is the roof's age. The ACV figures below are illustrative values from the Texas Department of Insurance (opens in a new tab), not standard depreciation percentages.
Hover or tap a row to highlight it.
| Roof age | ACV | Minus deductible | Insurer pays | You pay |
|---|---|---|---|---|
| 5 years | $8,500 | $4,000 | $4,500 | $5,500 |
| 10 years | $7,000 | $4,000 | $3,000 | $7,000 |
| 20 years | $4,000 | $4,000 | $0 | $10,000 |
The insurer pays the covered amount after depreciation and the deductible, and you fund the rest of the replacement cost. A 20-year-old roof can leave the insurer paying nothing because depreciation and the deductible together absorb the whole loss.
Options and what each changes
The NAIC (opens in a new tab) lays out how the main settlement choices differ. No universal ACV percentage exists, because depreciation depends on the property's age, condition, useful life and the policy wording.
- ACV coverage. Pays repair or replacement cost after depreciation. Premiums are probably lower than for replacement-cost coverage, and the claim payment is also usually lower.
- Replacement-cost coverage. Pays for like kind and quality without deducting depreciation, within limits and conditions. Some policies pay ACV first and release the withheld depreciation after you repair or replace.
- Functional replacement cost. Pays for materials that do the same job but may be cheaper or different, such as drywall in place of plaster.
- Extended replacement cost. Pays above the dwelling limit up to a stated percentage or dollar cap that the policy sets.
- Guaranteed replacement cost. May pay the full covered repair or replacement cost even above the declarations limit, subject to the policy terms. Very few insurers offer it, so check for a cap.
- Agreed value or stated amount. Uses a value or settlement amount fixed in the policy or endorsement, so age and depreciation are not recalculated at claim time.
- Roof schedules. A policy can pay replacement cost for most property but ACV, or a declining age-based schedule, for a roof or other component.
The deductible comes off after the loss is valued, and it can be a fixed dollar amount or a percentage of the insured amount, according to the Connecticut Insurance Department claims guide (opens in a new tab).
Where you meet the term
ACV most often appears in property and physical-damage coverage:
- Auto. Collision and comprehensive coverage, especially when a vehicle is totaled.
- Homeowners. Dwelling, other structures and personal property, where one policy can mix replacement cost for the dwelling with ACV for certain property or roofs.
- Renters and condo. Personal property can be written on either basis, and condo unit improvements and fixtures can have their own method.
- Business property. Buildings, equipment and inventory can be insured at ACV, replacement cost, agreed value or another stated method.
- Flood. The National Flood Insurance Program uses ACV for many personal-property claims, according to FEMA (opens in a new tab).
Look for it in the loss-settlement provision, policy definitions, a roof or valuation endorsement, a claim estimate or a settlement letter. The declarations page lists limits and deductibles, while the policy and its endorsements control how ACV is calculated. Life insurance works differently, since the cash value of a life policy is a savings element and not an ACV payment.
What Connecticut and New York change
Connecticut sets a specific valuation method for totaled cars. Under Conn. Gen. Stat. § 38a-353 (opens in a new tab), the insurer must use at least the average retail value from the National Automobile Dealers Association guide or another approved public source and one other approved industry source, then provide a detailed calculation and written notice of the right to dispute the amount. Conn. Gen. Stat. § 38a-313 (opens in a new tab) keeps replacement insurance, which covers amounts actually spent above ACV, as a separate coverage.
New York sets a default method. Under Regulation 64, 11 NYCRR § 216.6(b) (opens in a new tab), unless a law or policy defines it differently, ACV is the lesser of the reasonable cost to repair the property to its pre-loss condition or to replace it with a substantially identical item, including sales taxes. When you and the insurer disagree about ACV, New York Insurance Law § 3404 (opens in a new tab) provides an appraisal procedure.
Questions to ask an agent or insurer
- Is this item or coverage settled at ACV, replacement cost, agreed value, stated amount or another method? Different items in one policy can use different methods.
- How will depreciation be calculated, and what useful-life or condition assumptions apply? Depreciation depends on age, wear and condition.
- Does ACV apply to the roof, siding, appliances, electronics or personal property? A policy can pay replacement cost generally but ACV for particular components.
- If the policy has replacement cost, will the first payment be ACV, and what must I do to recover withheld depreciation? Many policies release the balance only after repair or replacement.
- What deductible, limit, sublimit, deadline and documentation apply to this claim? Proof of ownership, estimates and receipts can affect what is payable.
Frequently asked questions
These answers cover points that come up once you have a claim estimate in hand.
Is depreciation the same as tax depreciation?
No. Claim depreciation is based on the property's condition, replacement cost and expected useful life, according to the Connecticut Insurance Department (opens in a new tab), and it differs from accounting or tax depreciation.
Do I need to prove I owned the item?
For personal property, yes. The insurer is obligated to pay only for property you can show you owned at the time of loss, according to the Connecticut Insurance Department (opens in a new tab).
Does ACV always mean fair market value?
It depends on the state and the policy. California defines ACV as fair market value unless the policy defines it differently, while New York uses its repair-or-replace default, according to the California Department of Insurance (opens in a new tab).
Will ACV pay for a new roof?
Usually not in full. The payment is based on the depreciated value less the deductible, unless the policy provides replacement-cost coverage or another settlement method. See what renters and homeowners policies cover for how the pieces fit together.