Actual Cash Value
The value of insured property after subtracting depreciation from its replacement cost.
What is ACV?
Actual cash value (ACV) is the amount an insurer pays for a covered loss, calculated as the replacement cost of the damaged or destroyed property minus depreciation. Unlike replacement cost coverage, ACV settlements account for the age, condition, and remaining useful life of the item, meaning older property yields smaller payouts. ACV is the standard valuation method in most homeowners, auto, and personal property policies, though policyholders can often upgrade to replacement cost coverage for a higher premium.
Example
A five-year-old roof with a 20-year lifespan is destroyed by hail. Replacement cost is $20,000, but depreciation of 25% reduces the ACV payout to $15,000. The policyholder must cover the $5,000 difference out of pocket unless they carry replacement cost coverage.
Source: National Association of Insurance Commissioners (NAIC)