Actual cash value (ACV) is the amount an insurer will pay for a damaged or destroyed item or property after subtracting for age, wear and tear, and other depreciation. It’s the “real” current worth — not what you originally paid and not the cost to buy new. For homeowners this often means insurance checks that are smaller than replacement quotes.
Insurers and adjusters define ACV as the replacement cost of the property or item at the time of loss minus an allowance for depreciation. Depreciation reflects diminished value due to age, condition, remaining useful life, functional obsolescence and similar factors. Policy language will specify whether ACV applies to personal property, the dwelling, or certain coverages.
Common synonyms and related phrases: “depreciated value,” “current cash value,” and “actual cash worth.” You’ll see ACV in the policy’s definitions section, the “valuation” or “loss settlement” clause, and in adjuster reports or “explanation of loss” documents. (If your policy refers to “replacement cost” or “replacement cost value (RCV)” that is a different valuation method.)
At its simplest:
ACV = Replacement Cost − Depreciation
Replacement cost = the current cost to repair or replace with a like kind and quality item. Depreciation = reduction in value based on age, condition and useful life.
Appliance example — TV:
Structural example — Roof:
Personal property (furniture, electronics) is most often paid at ACV unless a replacement‑cost endorsement is purchased. For dwellings, policies may offer either ACV or RCV — many homeowners policies provide RCV for the structure, but older or specialized policies may limit payout to ACV for certain components (e.g., older roofs). Commercial policies commonly specify ACV unless otherwise endorsed.
RCV is better for policyholders because it covers the full cost of replacement. But RCV coverage raises premiums. ACV is cheaper but often leaves homeowners covering the depreciation gap out‑of‑pocket. Choosing RCV endorsements reduces claim risk but costs more in recurring premium.
When a policy is RCV‑based, insurers commonly pay ACV up front (the depreciated amount) and will pay the remaining recoverable depreciation only after the insured provides proof of repair or replacement (receipts, contractor invoices). If a policy is ACV‑based, the insurer pays the depreciated amount only and no recoverable depreciation is available.
Adjusters use cost databases, contractor/repair estimates, dealer prices, local market comparables, original receipts, photos, and manufacturer data to determine replacement cost and depreciation. For structures they may use local construction cost guides and line‑item repair estimates.
Disputes commonly use appraisal clauses (each party appoints an appraiser and a neutral umpire decides), independent expert reviews, mediation, or litigation. Policy language often prescribes appraisal and dispute resolution steps; following those steps usually required before suing.
ACV payments often won’t cover full replacement if significant depreciation exists. Examples: an older roof may receive an ACV check that’s far less than a full replacement quote; electronics and furniture often receive ACV, leaving you short of the money needed for new items.
Deductibles are subtracted from the insurer’s payment. Example: ACV calculated at $5,000 and your deductible is $1,000 → you receive $4,000. If your policy pays RCV with recoverable depreciation, the deductible still reduces the insurer’s initial and final payments according to policy terms.
To avoid ACV shortfalls consider adding replacement cost endorsements for personal property or ensuring dwelling coverage is RCV. Look for “replacement cost for contents” or “RCV dwelling” options at renewal.
Hire a public adjuster if the claim is large, complex, or you suspect underpayment. Public adjusters typically charge a percentage of the settlement; for big losses the extra recovery often justifies the fee. Independent appraisers are useful for discrete valuation disputes (e.g., antique items).
Scenario: A home suffers a fire. Damages include the roof and living‑room furniture. Policy deductible: $1,000. Policy provides RCV for the dwelling and ACV for personal property (no RCV endorsement for contents).
The homeowner initially received $5,720 and felt short. Reasons: depreciation on the roof and sofa, and deductible. Actions that increased payout: homeowner provided contractor invoices and photos of completed roof replacement, submitted receipts for the sofa replacement when allowed by an endorsement, and hired a public adjuster who documented higher replacement costs for specialized roofing materials — that led to an approved supplement and release of recoverable depreciation on the roof.
Insurance proceeds may be taxable in limited circumstances (e.g., business/operational income). Personal homeowners insurance claim proceeds for personal property or dwelling repairs are generally not taxable. Check a tax advisor for your situation.
No. Many standard homeowners policies pay ACV for personal property unless you buy a replacement‑cost endorsement. Dwelling coverage is often RCV by default in many modern homeowner policies, but some policies or endorsements may limit certain items to ACV.
Yes—by purchasing replacement‑cost endorsements for contents or ensuring your dwelling coverage is RCV at policy purchase or renewal. Ask your agent about “replacement cost for personal property” or upgrading dwelling coverage to RCV.
Timelines vary: initial inspections and interim payments often occur within days to a few weeks; final settlement can take weeks or months if repairs, supplements, or recoverable depreciation are involved. Large, complex claims take longer.
Request a written explanation of the depreciation methodology, provide counter‑evidence (receipts, maintenance logs, recent purchase prices), get independent estimates, use the policy’s appraisal clause if available, or escalate to a public adjuster or legal counsel.
Buyers should review seller disclosures about recent claims, roof/major system ages, and confirm insurability — older roofs or systems may be limited to ACV settlement and can affect future premiums or sale negotiations.
Landlords typically insure the building (structure) but not tenant belongings. Policies may pay ACV or RCV depending on the selected coverage. Ensure lease language clarifies responsibilities and encourage tenants to carry renters insurance for their personal property (often paid at ACV unless insured for RCV).
Investors should standardize coverages across properties, consider RCV for buildings where replacement cost exposure is material, add blanket limits, and evaluate endorsements for code upgrades, business interruption, and equipment breakdown to reduce ACV‑related shortfalls.
Escalate if the shortfall is large, the insurer won’t explain depreciation, or you have supporting evidence showing higher replacement costs. Public adjusters and independent appraisers often recover more than their fees for large claims.
Short dispute request template (use your policy number and dates):
“Re: Claim #[your claim number]. I disagree with the depreciation applied to [item/roof]. Attached are receipts, repair estimates, photos and a third‑party appraisal supporting a higher replacement cost. Please provide the depreciation schedule and cost database you used. I request a re‑inspection or appraisal under the policy’s dispute resolution provisions.”
Actual cash value is replacement cost minus depreciation — it reflects what an insurer will pay today for aged or worn property, not what it costs to buy new.
Review your policy now: check whether your dwelling and contents are ACV or RCV, get a professional replacement‑cost estimate or home appraisal, and contact your agent to discuss endorsements that close ACV gaps.
Check your state insurance department for guidance on claim practices and appraisal procedures; review your policy’s “loss settlement” and “appraisal” clauses for specific steps and timeframes. If you want a quick gloss on related terms, see the glossary entries for replacement cost and market value in your policy materials or your insurer’s glossary.
