Actual cash value (ACV) is the amount an insurance policy pays for damaged, destroyed, or stolen property based on its replacement cost minus depreciation. In plain terms, ACV pays what the item was worth in its used condition at the moment of loss, not what it costs to buy a new one today.
How it works
When a covered loss happens under an ACV policy or ACV provision, the claims adjuster starts with what it would cost to replace the item new today, then subtracts depreciation for age, wear, and condition. The older the item, the bigger the deduction and the smaller the check.
Example (illustrative numbers): Say a windstorm destroys a 15-year-old roof. A new roof of the same type would cost $20,000 today. If the roof had an expected life of 20 years, it had used up roughly three-quarters of its lifespan, so the adjuster might apply $15,000 of depreciation. Under an ACV settlement, the insurer would pay about $5,000, minus your deductible — even though replacing the roof actually costs $20,000. The numbers are simplified for illustration, but the gap they show is real.
ACV is the standard settlement basis for vehicles in auto insurance, and it appears in home insurance on older roofs, some personal property settlements, and certain lower-cost policy options. The alternative settlement basis is replacement cost, which pays without a depreciation deduction. For a side-by-side comparison, see our guide to replacement cost vs. actual cash value.
Why it matters for your policy
The settlement basis on your policy determines the size of your claim check, so it is one of the most important lines on your declarations page. Common places ACV shows up without homeowners realizing it:
- Roof schedules: Many carriers now settle older roofs at ACV even when the rest of the home is on replacement cost. If your roof is past a certain age, check how your policy would pay.
- Personal property: Some policies default to ACV on contents unless you add a replacement cost endorsement.
- Cheaper quotes: A quote that looks surprisingly low sometimes achieves that price by settling losses at ACV. Compare settlement basis, not just premium.
How depreciation is calculated and which items are settled at ACV varies by carrier and state, so read the policy language or ask your agent to confirm before you need to file a claim.
Have questions about how your policy would actually pay a claim? Better Choice Insurance Group is an independent agency based in St. Charles, Illinois, licensed in 14 states. We’ll explain your options in plain English and compare coverage across our carriers — free, no pressure.
Related terms
- Replacement Cost — The settlement basis that pays to replace property new, without a depreciation deduction.
- Dwelling Coverage — The part of a homeowners policy that pays to rebuild the structure of your home.
- Deductible — The amount you pay out of pocket before insurance pays on a claim.
- Claims Adjuster — The person who inspects your loss and calculates what the insurer pays.
- Personal Property Coverage — The coverage that pays for your belongings after a covered loss.
Frequently Asked Questions
Is actual cash value the same as market value?
No. Market value is what someone would pay for your property, including the land and local real estate conditions. Actual cash value is replacement cost minus depreciation, and it applies to the property itself, not the land. A home's ACV can be higher or lower than its market value.
How do insurance companies calculate depreciation?
Most carriers estimate an item's useful lifespan and reduce its value based on age and condition. A 10-year-old item with a 20-year lifespan might be depreciated around half. Methods vary by carrier and state, and adjusters also consider wear and maintenance, so two companies can reach different ACV figures for the same item.
Can I switch from ACV to replacement cost coverage?
Often, yes. Many carriers offer replacement cost on contents or roofs as an endorsement for an additional premium, though eligibility can depend on the age and condition of the property. An independent agent can tell you which of your coverages settle at ACV and what upgrading would cost.
Last reviewed: August 2026 · Reviewed by Evan Larson, Licensed Insurance Agent