Actual Cash Value (ACV)
Definition:
The current value of property after subtracting depreciation, based on what the item is worth today rather than its original purchase or replacement cost.
Explanation:
Insurers use ACV to calculate payouts when policies don’t include replacement cost coverage. Because it factors in age and wear, it usually results in a lower settlement than replacement cost.
Example:
If your 10-year-old roof originally cost $15,000, its ACV might only be $7,500. That’s the amount your insurer would pay unless your policy includes replacement cost coverage.
Why it matters:
This term affects how claims are handled and what payout a homeowner may receive.