What Does Actual Cash Value (ACV) Mean?
Actual cash value (ACV) is a term that refers to a method of computing what an insurer (such as an auto insurance company) will pay an insured, after a loss, for a specific insured item (such as a car). Generally, ACV is determined by subtracting depreciation from replacement cost. Replacement cost is the typically the preferred method of insuring. However, ACV is often a less costly method of insuring articles like cars.
There are several different methods by which your auto insurance company may calculate the amount it will pay you for a loss. ACV, sometimes known as market value, is the standard that insurance companies normally prefer when reimbursing policyholders for their losses. The ACV represents the dollar amount you could expect to receive for an item like your car if you sold it in the marketplace. The auto insurance company determines the depreciation based on a combination of objective criteria and subjective assessment. The objective criteria are calculated using a formula that takes into account the category and age of the property and the subjective assessment comes from the auto insurance adjuster’s visual observations of the car or a photograph of it. In the case of auto theft, the insurance company would deduct from its replacement cost an amount for wear and tear prior to the time it was stolen.
Certain property may be subject to a special valuation basis other than replacement cost or actual cash value. To find out about ACV and to learn if your auto insurance company has special valuations, contact your agent to learn more.
NOTE: The purpose of this article is to provide general information on the law, which is subject to change. If you have a specific legal problem, you may want to consult your lawyer. For any auto insurance related questions, you may wish to consult your insurance company or insurance agent.
This content is offered for educational purposes only and does not represent contractual agreements. The definitions, terms and coverages in a given policy may be different than those suggested here and such policy will be governed by the language contained therein. No warranty or appropriateness for a specific purpose is expressed or implied.