Updated · Written by Five Star Claims Adjusting’s licensed public adjusters
Actual cash value (ACV) is what your damaged property was worth at the moment of the loss — not what it costs to buy or build new. In most property policies it is calculated as the replacement cost minus depreciation. It is one of the most important numbers in any claim, because it is often the first, and sometimes the only, amount the insurer pays.
The actual cash value formula
For most homeowners and commercial property claims, insurers start from:
- Actual cash value = replacement cost − depreciation
- Replacement cost (RCV): what it would cost today to repair or replace the item with one of like kind and quality.
- Depreciation: the value lost to age, wear and condition before the loss happened.
Your policy's definitions and loss settlement section decide exactly how ACV is calculated for your claim, so read those first. Some policies define it differently, and courts in some places have used fair market value instead.
A worked example
Say a hurricane destroys a 10-year-old shingle roof. Replacing it today costs $20,000, and the insurer treats that roof as having a 20-year life, so it is half used up. Depreciation is $10,000 and the actual cash value is $10,000. If you have a 2% hurricane deductible on a $400,000 dwelling limit ($8,000), an ACV-only payment on the roof would be $2,000. On a replacement cost policy, the same claim is valued at $20,000 less the deductible, though the insurer may pay the depreciated amount first.
That gap — $10,000 of depreciation on one line item — is why the depreciation schedule matters as much as the estimate itself.
Actual cash value vs. replacement cost
- Replacement cost coverage pays what it takes to repair or replace with like kind and quality, without deducting depreciation. Many policies pay the ACV first and release the withheld depreciation (often called "recoverable depreciation" or holdback) once the repair or replacement is done.
- Actual cash value coverage pays only the depreciated value. The depreciation is not paid later.
- Many Florida homeowners policies cover the dwelling at replacement cost but personal property (contents) at actual cash value unless you bought a replacement cost endorsement. Check your declarations page.
- Some Florida policies now pay roofs on a schedule that reduces the payment as the roof ages, even when the rest of the house is on replacement cost. If your policy has a roof payment schedule, it will be listed as an endorsement.
Recoverable vs. non-recoverable depreciation
Recoverable depreciation is the part of the replacement cost the insurer holds back until you complete the repair, then pays when you submit invoices or proof of completion. Non-recoverable depreciation is gone for good, which is the case on an ACV policy. Policies set conditions and time limits for claiming recoverable depreciation, so keep every invoice and ask the insurer in writing what it needs and by when.
What drives the depreciation number
- Age of the item and the useful life the insurer assigns to it — the bigger the assumed life, the smaller the depreciation.
- Condition before the loss. Photos of the property before the damage are the best evidence you have.
- What is being depreciated. Some estimates depreciate labor as well as materials; whether that is allowed depends on the policy and the law that applies.
- Upgrades. A roof replaced five years ago is not a 25-year-old roof just because the house is 25 years old.
How to challenge an actual cash value you think is too low
- Ask for the insurer's full estimate and its depreciation schedule, line by line. You are entitled to see how the number was built.
- Check the ages and conditions the insurer used against your own records: receipts, permits, inspection reports and dated photos.
- Make sure every damaged item is in the estimate. Missing line items lower the claim more than depreciation ever does.
- Get your own estimate from a contractor or a public adjuster, priced for your area.
- If you still disagree on value, your policy may include an appraisal clause — a process for resolving disputes about the amount of loss.
Five Star Claims Adjusting's licensed public adjusters review claims at no upfront cost, and we are paid a percentage of the settlement only if we recover money for you. If your claim has been underpaid, delayed or denied, ask us for a free claim review.