What is "Actual Cash Value"

ACV or Actual Cash Value is a loss settlement option that establishes how much an insurance company is going to pay in the event of a claim. Insurance companies normally take the replacement value of an item and subtract a specified amount for depreciation to calculate the ACV. Most people just assume that their policy affords the amount to replace everything, but that is not always the case.

Why is this important?
If there is a fire at your house and it costs $200,000 to rebuild the entire structure, the insurance company could wind up only paying you $150,000 because that is the depreciated amount.

Does this apply exclusively to the building?
No, your personal items can be replaced on an ACV basis as well. If you had a sofa that you purchased five years ago for $6,000 the insurance company could give you a check for $3,000 based on the age and condition.

How do you increase coverage to avoid ACV?
It is very common for all insurance companies to offer "Replacement Cost" options for both your home and contents. Sometimes this coverage is tied in directly to the policy and other times it is an optional coverage added by endorsement.

All homeowners policies are different and vary by company. It is important to consult your insurance agent to make sure you have the proper coverage.