What Does Actual Cash Value (ACV) Mean?
Actual cash value (ACV) is one way that insurance companies measure the worth of assets for an insurance claim. They consider a fair market price of what the asset could have been sold for on the day it was lost, stolen, or destroyed. This typically comes out to a lower amount than the policyholder originally paid for the asset because assets lose value over time due to depreciation and wear and tear.
Insuranceopedia Explains Actual Cash Value (ACV)
For example, if a policyholder wrecks their 2011 car and the insurance policy covers the actual cash value, the insurance company would pay the amount equal to the car's worth at the time of the accident, which is determined by subtracting factors like depreciation from the replacement cost. This differs from replacement-cost system, which would pay the insured enough to buy a new, replacement asset.