Actual Cash Value (ACV), also referred to as market value, is a term commonly used in the insurance industry to define the amount of money needed to replace and repay something that has been stolen, damaged beyond repair and lost that is something of similar quality. A lot of insurance companies have written policies which provide the policyholder an actual cash value of an insured item in case of loss. However, there are certain restrictions and limitations in actual cash value coverage that must be regarded by most people upon acquiring an insurance to cover special items.
Actual Cash Value is mainly consisting of the cost of the item when it was still new minus depreciation (ACV = replacement cost – depreciation). It signifies the amount of money you would receive if you sell the item in the marketplace. Most insurance companies acquire the depreciation based on objective criteria and subjective assessment. For example, if you a buy a brand new car that costs $10, 000 USD and unfortunately crashed the car a week after, the insurance company will most likely pay the entire face value, considering the mere fact that the depreciation is fair minimal enough. However, if the car you acquired was damaged in 9 year later, the insurance company might need to weigh things first after evaluating the age and the damages of the car; and the actual cash value might reach around $1,000 USD on that point. In this case, the payment made by the insurance company to the policyholder may be used by the policyholder to replace the old, damaged car with comparable quality: a car of 10 years with similar mileage.
One major disadvantage of actual cash value is the mere fact that it does not include appreciation, when the item obtains value over time. For assets like jewelry, homes, antique furniture, classic cars, specialty policies should be written to make sure that the policyholder is well compensated for the items if in case a loss occurs. It may be hard to compute for the actual cash value of unique items such as works of art, since there is no other thing to be compared with it. In these cases, a written stated value policy must be provided in which both the policyholder and the insurance company should agree in term of the value and the amount of the item.
Upon purchasing an actual cash value coverage, policyholders should talk and negotiate to their individual insurance representatives about the different options and the terms provided in each policy. They may discuss things which include what will happen in case of a loss as well as good policy options that will cater their needs. This is important to make sure that you are investing in the best insurance policy. For instance, an individual who works at home, the loss of the home may also be a loss an office which includes the records and equipments and therefore, the entire condition will complicate the coverage of the home insurance policy.