Actual Cash Value (ACV)

Actual cash value is how your insurer calculates what a damaged or destroyed item was worth at the moment of loss -- not what it cost when you bought it, and not what a new one costs today. They start with replacement cost (what you would pay for an identical item at today's prices), then subtract depreciation for every year of age and wear the item accumulated before the loss.

Think of it like a used-car listing. You buy a sofa for $2,000. After eight years of daily use, that sofa has lost most of its resale value. If a fire destroys it, an ACV policy looks at what a used eight-year-old sofa in similar condition would sell for -- perhaps $300 to $500 -- and that is what the claim pays.

The gap between ACV and what you actually need to replace the item is called the depreciation holdback. On a large claim, like a hailstorm that destroys a ten-year-old roof, this gap can be enormous. A $30,000 roof on an ACV policy might pay $7,000 after depreciation, leaving you $23,000 short with repairs still to complete.

Most homeowners are better served by replacement cost coverage, which removes the depreciation deduction entirely. You pay a modestly higher premium, but when a real loss happens, the payout matches what it actually costs to replace what you lost. ACV coverage is generally a false economy on a home policy: the premium savings rarely justify the coverage gap on a significant claim.