Understanding Actual Cash Value (ACV)
What is ACV?
There’s a term in insurance that floats around quite often, and that is Actual Cash Value (ACV). This applies to many things. For example, in regards to car insurance, most of the time your car is insured for the ACV at the time of the loss. Your insurance agent is not able to tell you how much the insurance carrier will pay for your car if something should happen, because the loss has not occurred.
ACV vs. Replacement Cost
The same is true when it comes to your homeowner’s policy. Most of the time, in our agency, we write replacement cost on all of our home policies. Replacement cost covers what it costs to replace your home or personal items if something were to happen, versus ACV.
When ACV is the Only Option
On homeowner’s insurance, there are times when an ACV policy is the only option. For example, if your roof is over 15 years old, most carriers won’t write a replacement cost policy on an older roof. The rest of the policy may still be replacement cost but the coverage on the roof is only ACV. Another example is if your home is older and hasn’t been updated – it can be harder to get replacement cost. ACV may also be the only option on unique homes, for example a home built out of shipping containers.
Again, if you have an Actual Cash Value (ACV) policy, the insurance carrier will only pay the actual cash value of the property at the time of the loss, and that cannot be predetermined.