What is actual cash value?
My insurance company assessed the "actual cash value" of my car, but it's a lot less than what I paid for it. What is actual cash value and how is it calculated?
Actual Cash Value (ACV) is one of the ways insurers determine the insurance value of something (find out How Auto Insurance Companies Value Your Car). This is important because it affects how much the insurer will pay out in the event of a claim.
Now, in actuality, there are 5 ways to calculate ACV:
2. Market Value: This approach relies on experts to assess the value of the property before and after the loss. The disadvantage of this method is that it can be difficult to accurately assess the fair value of the property and may it not be equal to the actual loss incurred by the insured.
3. Income Method: This approach uses a net income multiplied by capitalization rate formula to calculate the "value" of the property. This approach is typically used for dilapidated, income-producing property.
4. True Value to Owner: This method is used when the insured believes that other methods fail to take into account some special circumstances (for example, an insured building might be very well maintained for its age).
5. Broad Evidence: This approach combines all of the above methods to get an approximate value.
As you can see, the exact method used to calculate ACV depends on the type of property in question as well as the actions of the insured.
If you don't believe the value calculated by your insurance company is accurate, you might not have to settle for it. You can push for a method of calculation that would give you the highest ACV.
Have a question? Ask us here.
Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won Insurance Council of BC awards in 2015 and 2020 for academic excellence in the insurance licensing courses. He educates insurance professionals through PNC Learning and as a Thought Leader at ReFrame Insurance.
In his day job as an insurance broker, he helps businesses with creative risk management solutions and strategic advice when it comes to insurance.[Read full bio]