Actual Cash Value: What It Means in Homeowners Insurance 

Homeowners insurance can be complex, especially when it comes to understanding how claims are paid. One term that often causes confusion is “actual cash value,” or ACV. If you’re filing a claim after a loss, having ACV coverage can make a big difference in what you receive.

What Is Actual Cash Value in Homeowners Insurance?

Actual cash value is the amount your insurer will pay you for damaged or stolen property, minus depreciation. In other words, it reflects the item’s current value, not what it cost when you bought it. This concept is important because it affects how much money you’ll receive after a claim. Without understanding ACV, you might expect to be reimbursed for the full replacement cost, only to find your payout is significantly lower.

How Is Actual Cash Value Calculated?

The following are the basic steps insurers follow to calculate ACV:

• Determine the item’s replacement cost, or how much it would cost today to buy a new item of the same kind and quality.

• The insurer evaluates how long you’ve had the item and how much wear and tear it has sustained.

• Based on the item’s expected useful life and current condition, a percentage is subtracted from the replacement cost to reflect its loss in value over time.

• The actual cash value, or the remaining amount after depreciation, is what you may receive in a claim settlement.

Understanding actual cash value can help you better anticipate what to expect from your homeowners policy. It may also influence the coverage choices you make, especially if you’re comparing policy types or endorsements.

If you have any homeowners insurance concerns, contact Etler-Kettenacker Agency in Mason, Ohio. Our agents are well-equipped to discuss ACV and can help you better understand your coverage.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.