Actual Cash Value (ACV) is the value of property at the time of a loss, taking its age and wear into account. The most common way to figure it is replacement cost minus depreciation: start with what it would cost to buy the item new, then subtract value lost to age and use. ACV reflects the principle of indemnity—paying you for what your used item was actually worth, not for an upgrade.

Why it matters

ACV directly affects how much you collect after a loss. Because it subtracts depreciation, an ACV payment on older property can be noticeably less than the cost to replace it. Knowing whether a policy pays ACV or replacement cost helps set client expectations before a claim, not after.

A simple example

A roof that would cost $20,000 to replace is 40% depreciated. ACV = $20,000 − $8,000 = $12,000 (before the deductible). A sofa with a $2,000 replacement cost, a 10-year useful life and 4 years of age is 40% depreciated, so its ACV is $1,200. Under an unendorsed ISO homeowners form (HO 00 03), personal property is settled at ACV; the Personal Property Replacement Cost endorsement (HO 04 90) changes that. The ISO dwelling form DP-1 and the commercial Building and Personal Property form (CP 00 10) also settle at ACV unless replacement cost is added.

Don't confuse it with…

• Replacement cost pays to replace the item with a new one of like kind and quality, without subtracting depreciation. It pays more than ACV.
• Depreciation is the amount subtracted to get from replacement cost down to ACV—it's the gap between the two.
• Market value (what a buyer would pay) can differ from ACV, especially for real estate where land value is involved.

On the exam

Memorize the formula: ACV = Replacement Cost − Depreciation. Expect a question asking you to compute ACV by subtracting depreciation, and to contrast an ACV settlement (less money, depreciation deducted) with a replacement-cost settlement (more money, no depreciation deducted).