Actual Cash Value
What Is Actual Cash Value (ACV)?
Actual cash value is how much an insurance company pays for an insured property based on its current market value. An item’s ACV is its replacement cost (the cost to replace your property with a like item), minus depreciation (age and wear and tear over time).
Current market value (CMV) is a financial term that refers to the amount for which something could be sold now. For example, if a videographer uses a lighting rig for a few years, its value decreases over time. So upon resale, the videographer would likely sell the rig for considerably less than the cost to purchase it new.
How Does Actual Cash Value Work in Insurance?
ACV takes depreciation for age or wear and tear into consideration.
An item’s actual cash value is typically calculated by taking its original purchase price and subtracting a percentage of that cost for each year the item has been in use to account for its depreciation. Depending on the policy, the ACV may also be calculated based on the cost of a replacement, minus its depreciation.
The condition of the lost or damaged item before its loss may also affect its actual cash value. For example, if your camera equipment’s waterproof hard case had a small dent before it was stolen.
Example:
You’re a DJ and you upgraded your equipment to a new all-in-one system. You paid $2,000 when you bought it two years ago. An accident damages the system beyond repair, so you file a claim under your gear and equipment insurance.
With an actual cash value policy, your insurance pays its original cost, minus two years’ worth of depreciation, for a total of $1,600.
$2,000 – depreciation = $1,600
If your policy has a deductible, you’ll also be responsible for paying that deductible on your claim. Say your deductible is $100. In the above example, your final claim payment will be your system’s ACV minus the $100.
$2,000 – depreciation – $100 deductible = $1,500 claim payment
Define Actual Cash Value vs Replacement Cost: What’s the Difference?
Replacement cost is the cost to replace your lost or damaged item with a new, like item.
A like item is either the same item if it’s still available, or the next closest version that is currently available.
Actual cash value is the current market value of the specific item that was damaged or ruined.
Say in the prior example, the DJ’s insured item was their XDJ-RX3 2-Channel Performance All-In-One DJ System that they paid $2,000 for two years ago. In this case:
ACV = Original purchase price ($2,000) – Depreciation = $1,600
Replacement cost = a new, currently for sale XDJ-RX3 2-Channel All-In-One system = $2,300
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