Actual Cash Value

What Does Actual Cash Value Mean?

Actual Cash Value (ACV) is a method used by insurance companies to determine the value of assets for an insurance claim. It reflects the fair market price of what the asset could have been sold for on the day it was lost, stolen, or destroyed. This value is usually lower than the original purchase price paid by the policyholder, as assets decrease in value over time due to depreciation and wear and tear.

Insuranceopedia Explains Actual Cash Value

For instance, if a policyholder damages their 2011 car and the insurance policy covers the Actual Cash Value (ACV), the insurance company would pay an amount equal to the car’s value at the time of the accident. This value is calculated by deducting factors such as depreciation from the replacement cost. In contrast, a replacement cost policy would reimburse the policyholder with an amount sufficient to purchase a new, equivalent asset.

ACV payouts usually come into play after a serious accident, so it helps to know what happens when your car is totaled before you file a claim. Because ACV factors in depreciation, drivers with an auto loan often owe their lender more than the insurance payout after a total loss, and that shortfall is what standalone GAP insurance is designed to cover.