Actual Cash Value ("ACV"), Depreciation
and Your Insurance Claim
What is Actual Cash Value?
"Actual Cash Value" is a phrase found in insurance policies, and generally means the value of a thing, in its current condition -- that is, the current market value between ready, willing and able buyers and sellers. For insurance claims, an adjuster estimates ACV just before the loss occurred, as if the loss had not happened. This value is its "used" value, as opposed to its current, new, replacement cost.
The Actual Cash Value ("ACV") is important because most insurance policies require settlement of the claim at ACV, though a policy may also provide for a replacement cost benefit for some or all of the damages, as part of a
residential or commercial property claim,
a claim from an automobile wreck,
or from a contents claim after a hurricane, fire
or flood.
The original claims adjuster will estimate the actual cash value for each individual thing damaged by the loss, and will use one of several ways to come up with a value. Most commonly, the adjuster will determine the current replacement cost, and subtract "depreciation" based on the thing's condition, age, and lifetime. Read more about depreciation, and see an example of how depreciation, replacement cost and ACV are estimated
While estimating ACV makes sense where there is a commonly accepted market, for example, a used car, it makes less sense for each individual part of a house damaged by fire or flood -- for example, paint on the walls, or vinyl flooring. Even so, because the policy requires it, the estimate you get will address ACV for each line item in the estimate.
For assistance after a loss to your business, home or other property
Contact
John Ruskin
at the address or phone number, below.
John Ruskin is a Louisiana attorney
and a licensed adjuster in multiple states,
with a background in business, residential and environmental claims.
Additional background on John Ruskin is available here.
There is no fee for an
initial consultation.
What are the different ways to estimate Actual Cash Value in an insurance claim?
Commonly, claims adjusters estimate ACV with estimates for replacement cost and depreciation. See an example of this method, here: "An example of estimating and calculating depreciation and "actual cash value" in an insurance claim".
Other methods include:
- Looking at actual market conditions. For example, "blue book" values for used cars. This method may be useful in other situations, for example: high quality furniture, silverware, antiques or for other things where there is a current market and market history available.
- Where a damaged thing is new: looking at current replacement cost in the local market.
- Consulting an expert - useful for antiques or other items where specialized valuation skills and knowledge substitute for commonly available market information.
Estimating software commonly used by adjusters rely on research into local market conditions, and the software will provide reasonable estimates of replacement cost values (if properly updated and researched by the software company and the adjuster). This research should address market conditions based on the location of the loss.
For more information on how to prepare for an insurance claim, or assistance in the adjustment of insurance claims, please contact
John Ruskin
at the address or phone number, below.
