What Does Actual Cash Value Mean for Home Insurance?

BY SOLO INSURANCE®

Home insurance has a lot of confusing terminology, especially when it comes to the types of policies and how you can receive compensation. There’s Actual Cash Value or Replacement cost value. For example, ACV or RCV refers to two areas: the value of your home or personal belongings coverage.

Actual Cash Value in Home Insurance

Before understanding Actual Cash Value in home insurance, here’s a break it down of what home insurance covers. With regard to property, there are  three main areas : 

•  Dwelling covers the physical home and its attached structures in case of damage or loss due to fire, wind, hail, lightning, smoke, theft, vandalism and more.
•  Personal Belongings coverage covers personal items from the same causes of loss and damage that are covered under dwelling insurance.
•  Additional Living Expenses cover costs related to temporarily moving if the home is destroyed after a disaster.

Actual Cash Value in Home Insurance

There are two ways a homeowner may receive compensation for lost or damaged belongings from their insurance policy: actual cash value or replacement cost value. An actual cash value home insurance policy provides compensation while accounting for depreciation. This operates like car insurance. So as the value of your items depreciates, or drops, so does the amount of compensation you can receive. For example, say you purchase a television for $1,000. A few years later, a fire breaks out and destroys most of your belongings, including the TV. Since you purchased it, the value of the TV has dropped to $500. Instead of receiving $1,000 in compensation, you will likely receive closer to $500.

 A replacement cost value policy provides compensation without depreciation. No matter how the value of your belongings depreciate, this policy will provide compensation to help replace it with one of similar value.

Many home insurance policies are actual cash value when it comes to personal property. It is also the cheaper alternative. If you would prefer replacement cost value for your items, you may be able to ask your insurance agent about adjusting your policy. Keep in mind that certain items have limited coverage under home insurance policies and replacement cost value may not be available to cover all of your personal items. Objects such as jewelry, furs, art and electronics often have limited coverage under a basic home insurance policy and may need policy floaters to cover the cost of replacing or repairing them after a covered incident.

Recap:

If you see ACV [Actual Cash Value] on your policy, that coverage provides compensation while accounting for depreciation. It’s the actual value of things at the time of the loss. This is similar to how car insurance works.