Actual cash value might be one of those insurance-related terms you often hear, but aren’t entirely clear on what it means. But the truth is, it’s an important term to understand, and we’re going to explain what it means and why it matters in today’s post.

What Does Actual Cash Value Mean?

Actual cash value is important, so what does it mean? Simply put, actual cash value is what your property would be worth if it were to be stolen or damaged, minus depreciation. It’s basically what the item could be sold for if it were sold today.

This amount is often used by insurance companies to help them decide how much you will be paid after a covered loss for the belonging covered under your policy. ACV is calculated by finding the cost of replacing a certain object and then subtracting the depreciation from that amount.

Why Does it Matter?

Once you file an insurance claim, an insurance adjuster will then determine the cost of your claim. Agreeing to value your item at actual cash value means they will compare it to a similar item to figure out the amount.

Is ACV Different from Replacement Cost?

Replacement cost is also relevant, but it’s different from ACV. It refers to the amount it would cost to replace your item if it were brand new. Replacement cost could be a part of your policy, in which case the payout you would receive would be higher than the one you get with ACV. However, you will pay more for your policy.

When choosing between the two options, actual cash value can be a good idea if you’re on a budget as your premium will be lower. Replacement cost policies are a good idea if you own a lot of older items you need to insure. They’ll have a higher premium but you’ll end up paying less in the event you need to replace something.
We hope this clears up your questions about actual cash value! Do you have more questions about insurance terms or any other insurance-related topics? The team at ASA Insurance is here to help! Give us a call today so we can help with all of your insurance needs.