Co-authored the book “Future Millionaires’ Guidebook”
13 years writing personal finance content
A former chief copy editor at Bankrate and past managing editor at Macmillan, Kim specializes in writing easy-to-understand, actionable personal finance content.
3+ years producing insurance and personal finance content
Main architect of the Insurify Quality Score
Courtney ’s deep personal finance knowledge extends beyond insurance to credit cards, consumer lending, and banking. She thrives on creating actionable content.
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Actual cash value (ACV) is one way your homeowners insurance company can reimburse a property damage claim after a covered loss. Generally, policies with ACV pay you the value of the stolen or damaged item, minus depreciation.[1]
While this type of coverage can be inexpensive, any payouts you receive likely won’t be enough to replace your item with a new version. Understanding how ACV works can help when you’re choosing coverages for your homeowners insurance policy.
What is actual cash value for home insurance?
Actual cash value is a coverage option that determines how your insurance company reimburses you for an approved claim. When your insurance approves and processes your home insurance claim, your settlement is equal to the replacement value of your damaged or stolen item, minus the value of depreciation.
That means you might not get enough money to replace your item with a brand-new version. Instead, you’ll need to either buy an older version or cover the price difference out of pocket.
Calculate the cost of replacing an item with one that’s a similar kind and quality at today’s prices. This is known as the item’s replacement cost.
Subtract depreciation from the replacement cost.
Companies calculate depreciation by assigning a lifespan to the item and determining the percentage of life left.[2] The insurer then multiplies the percentage by the replacement cost to get the item’s ACV.
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How actual cash value works
To figure an item’s ACV, an insurer determines the cost of replacing your damaged or stolen property. Then it decreases the value based on depreciation factors like age and condition.
For Example
Let’s say you file a claim for damaged living room furniture you bought for $10,000 four years ago. With ACV coverage, your insurer may determine that the furniture’s lifespan was 10 years, so it depreciated 40% since you bought it. In this case, your insurance settlement for the furniture would be $10,000 minus the 40% depreciation: $6,000.
Check your homeowners insurance policy to see if it contains ACV coverage. Here’s where you might find it:
Dwelling coverage
Dwelling insurance is part of your main homeowners insurance policy and covers your home’s main building. Most standard policies cover your home up to its replacement cost value.
Other structures coverage
Part of your homeowners insurance policy also covers any structures that aren’t attached to the main building, such as detached garages, gazebos, and fences. Policies typically default to replacement cost coverage for these other structures.
Personal property coverage
Your homeowners policy also covers your personal belongings, such as your furniture and electronics. Most homeowners policies default to ACV for personal property, but you may be able to buy replacement cost coverage for an additional fee.
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Actual cash value vs. replacement cost coverage
ACV and replacement cost value (RCV) both refer to how you may receive reimbursement from your home insurer.
RCV coverage reimburses you the value of the stolen or damaged property regardless of depreciation. You can take the money and replace your property at today’s value, so it makes you whole after a covered loss. But insurance companies may issue your claim payout in two installments. You’ll get one check for the ACV of your property and another check for the recoverable depreciation portion of the claim.
ACV reimburses you for the amount your property is worth at the time of the damage or theft — not what it costs to replace it with something new. But you’ll typically get one check from the insurer, so the process is a bit more streamlined. ACV is also a more affordable option because your payout is typically less.
On the other hand, a replacement cost policy does the opposite. It doesn’t take depreciation into consideration, so your premiums increase but you also get a higher payout for a covered loss.
Actual cash value coverage pros and cons
Before updating your home insurance policy, consider the advantages and disadvantages of ACV.
Pros
Lower premiums compared to policies with replacement cost coverage
Streamlines the process with one settlement check
Helpful if you own many expensive items that appreciate over time
Cons
Higher out-of-pocket costs if you submit a claim
Policies usually default to ACV for home’s contents
Less helpful for inexpensive items
Replacement cost coverage pros and cons
If you’re considering updating your policy to include RCV instead of ACV, consider these advantages and drawbacks.
Pros
Lower out-of-pocket costs after a claim
Helpful if you have older items or live in a theft-prone area
Usually comes with RCV coverage for dwelling and other structures coverage
Cons
Higher premiums compared to policies with ACV
May receive payout in two installments
Not as helpful for covering antiques
How the actual cash value settlement process works
Most homeowners insurance policies default to ACV coverage for personal belongings. If you need to submit a homeowners insurance claim for stolen or damaged property, here’s how the process typically works:
Contact your homeowners insurance company. You’ll work with the insurer to file a claim, which may involve completing forms, submitting pictures of the damage, and submitting receipts for damaged or missing personal property.
Company calculates actual cash value. An adjuster from your insurance company will investigate your claim. They’ll calculate the replacement cost of your property and subtract the value of its depreciation to determine the ACV.
Receive payment. If your insurance company approves your claim, it provides a settlement and sends you a payment. The time it takes to receive the money depends on several factors, including your insurer and the nature of the claim.
Decide how to replace your property. ACV insurance payouts may not be enough to replace your property with a brand-new version. You can use the payment to buy an older version or pay the difference for a new model out of pocket.
Actual cash value FAQs
Check out our guide on home insurance adjusters, and read the answers to some of the most common questions homeowners ask about ACV insurance below.
Is it better to have actual cash value or replacement cost?
It depends. ACV premiums are often lower, but this type of coverage may leave you underinsured because you’ll typically get a lower payout when submitting a claim. On the other hand, an RCV policy usually has a higher premium and provides a higher payout when you need to replace a stolen or damaged item.
How is your home’s actual cash value calculated?
Insurance companies can calculate ACV by determining what it would cost to buy your insured property new today and subtracting depreciation based on factors like age and condition. But most homeowners insurance policies include replacement cost coverage for your dwelling.
Can you negotiate actual cash value?
It’s possible. Depending on the insurance company’s process, you may be able to negotiate your property’s ACV.
It’s a good idea to research information like the item’s typical lifespan, gather documents that show the age of your item, and research the cost of similar items at today’s prices. These details can support your claim.
What is the difference between actual cash value and market value?
Your home’s market value is based on the physical structure of your home and the land it’s on.
It also takes intangible factors into account, such as neighborhood amenities and nearby home values. These factors affect your home’s value, but they don’t affect how much it would cost to replace your home and belongings.
What factors should you consider when choosing between actual cash value and replacement cost coverage?
The coverage that suits you best depends on your coverage needs and budget. If you want to limit risk, you may prefer a policy with replacement cost coverage because it typically provides a higher payout when you need to submit a claim.
If you want to save money, you might choose ACV coverage.
NAIC. "Rebuilding After a Storm: Know the Difference Between Replacement Cost and Actual Cash Value When It Comes to Your Roof."
Kim Porter
Kim Porter is a writer and editor who's been creating personal finance content since 2010. Before transitioning to full-time freelance writing in 2018, Kim was the chief copy editor at Bankrate, a managing editor at Macmillan, and co-author of the personal finance book "Future Millionaires' Guidebook." Her work has appeared in AARP's print magazine and on sites such as U.S. News & World Report, Fortune, NextAdvisor, Credit Karma, and more. Kim loves to bake and exercise in her free time, and she plans to run a half marathon on each continent.
3+ years producing insurance and personal finance content
Main architect of the Insurify Quality Score
Courtney’s deep personal finance knowledge extends beyond insurance to credit cards, consumer lending, and banking. She thrives on creating actionable content.
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