What Is Actual Cash Value Coverage?

Actual cash value (ACV) is one way insurance carriers determine how much your property is worth. The actual cash value of your home or personal property is calculated by subtracting depreciation from the replacement cost. Insuring property for its actual cash value means you receive what the item is worth at the moment of the loss, not what it costs to replace it.

What Homeowners Need to Know about Actual Cash Value Coverage

ACV coverage can be a deceptively attractive option for homeowners. The premiums are usually lower than those for replacement costs coverage, so it seems like a good deal. However, those low premiums may not be worth it if you have to make a claim.

Let’s say you insure your home for its actual cash value. Years later, your dwelling suffers wind damage to your roof, which is 12 years old, and the repairs cost $15,000. 

Your insurance provider is not going to pay the full amount to repair the damage. It will likely use this calculation to figure out the years of use left in your roof and its depreciated worth: 

R × (E - C) / E = ACV
R = replacement cost of the item 
E = expected life (lifespan) of the item 
C = current life of the item
ACV = actual cash value 

So if your roof has an expected life of 15 years, your payout comes to:

$15,000 x (15-12) / 15 = $3,000

The result: your insurance check is only a small percentage of what you need to get your roof fixed. But if you have replacement cost coverage, only your deductible would be subtracted from your payout.

Most home insurers use replacement cost coverage for the physical structure of your home, but that’s not true for personal property. Carriers typically default to actual cash value coverage for the stuff inside your home, such as:

  • Furniture
  • Appliances
  • Clothing
  • Dishes
  • Electronics

You can see how insuring for the actual cash value of some items may end up being expensive. Electronics, for instance, depreciate quickly, so your ACV payout from a stolen laptop may not come close to what it costs to replace it.

That’s why Kin only offers replacement cost insurance. We want to make sure homeowners can actually use their coverage when they need it.

When Does ACV Coverage Make Sense?

For some people, insuring property for its actual cash value may make sense. For example, you might go this route if:

  • You’re confident you can make repairs. DIYers may decide an actual cash value policy is the more affordable option.
  • You are comfortable replacing your property with older or used items. ACV coverage might make sense if you have access to older, affordable replacements.
  • Your budget can’t handle higher premiums. Actual cash value coverage is usually less expensive, so this option may help you save money now at a potential cost to you later.

When in doubt, ask your agent for guidance.

How Do I Know if I Have ACV Coverage?

If you bought your policy from Kin, you don’t have actual cash value coverage – we only offer replacement cost insurance. Other home insurance policies may be actual cash value coverage unless they explicitly state otherwise.

Read your policy closely or review it with your agent to make sure you understand what to expect from your coverage. The information you’re looking for is typically listed under Coverage C (personal property protection).


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