The difference between actual cash value and replacement cost

Posted in General, Auto, Home

As an auto or home policyholder, many of us forgo reading the fine print when it comes to our policies. We rely on our independent agent to help us choose the right coverage based on our needs. However, as you meet with your agent, you may want to discuss what your current policy covers so you are not surprised if you file a claim.

Actual Cash Value

What does Actual Cash Value (ACV) mean?
ACV is the cost to replace or repair an item that is accidently damaged, destroyed or stolen, minus depreciation. Depreciation accounts for normal wear and tear of an item over time.

Equation: Cost Brand New – Depreciation = Actual Cash Value

Here’s an example.
In 2011 you bought a brand new Toyota Camry for $26,000. Fast-forward to today. An auto accident occurs and your car is completely totaled; you file a claim with your insurance company, deeming your car a complete loss (you can’t drive it and it can’t be salvaged). Under your insurance policy with an Actual Cash Value coverage, the insurance company offers you a settlement of $12,300, which covers the cost of what the vehicle was worth prior to the accident (less any deductible).

Why are auto policies typically ACV?
You’ll find ACV is common in an auto insurance policy because a vehicle’s value and condition depreciates quickly. Think of it this way, it’s easier to find a used car that may be 5-10 years old and in good condition versus a television or laptop, because those items (electronics) tend to have shorter life-spans and the technology is constantly evolving.

Replacement Cost

What does Replacement Cost mean?
Replacement cost is the cost to replace or repair an item that is accidently damaged, destroyed or stolen, at the original value (when it was first bought). This means depreciation is not a factor.

Equation: Cost Brand New = Replacement Cost

Here’s an example.
You just got back to your home after a weekend away, only to discover your home was burglarized and your 2016 80” smart TV that cost $4,500 was stolen. You file a claim with your insurance company and because you have replacement cost on your homeowners’ insurance policy, you receive a check for the exact amount you paid when you first purchased that TV. 


Although ACV and replacement cost can get a bit confusing, your independent agent will know what is best for you. Give them a call today to review your auto and home policies.

Disclaimer: If the policy coverage descriptions herein conflict with the language in the policy, the language in the policy applies. Coverages described herein may not be available in all states; each individual claim is unique and although claim examples provide coverage, it does not necessarily mean coverage would be provided in all cases. Contact your local independent agent for complete details on coverages and discounts.


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