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What is Actual Cash Value?

Mary McMahon
Updated May 16, 2024
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Actual cash value is a term used in the insurance industry to describe the amount of money required to replace something which has been lost, stolen, or damaged beyond repair with something of comparable quality. Many insurance companies are written to provide the policyholder with the actual cash value of the insured item in the event of a loss, and insurers often prefer to carry this type of coverage. However, there are some limitations to actual cash value coverage which people should be aware of when purchasing insurance to cover specialty items.

Put simply, actual cash value consists of the cost of the item when it was new, minus depreciation. If someone buys a brand new car for $10,000 United States Dollars (USD) and crashes it a week later, the insurance company is likely to pay out almost the full face value, recognizing the fact that depreciation was fairly minimal. On the other hand, if the car is ruined 10 years later, the insurance company might determine, after evaluating the car, that actual cash value at that point might be $1,000 USD. This payment would allow the policyholder to replace the damaged car with one of comparable quality: a 10 year old car with similar mileage.

One of the biggest problems with an actual cash value policy is that it does not consider appreciation, when an asset gains in value over time. For things like homes, classic cars, antique furniture, and jewelry, specialty policies need to be written to ensure that the policyholder will be properly compensated for the item if a loss occurs. It can also be difficult to calculate actual cash value for unique objects like works of art, since there is nothing to compare the piece with, and in these cases, a stated value policy may be used instead, with the insurance company and policyholder agreeing on a value and insuring the item for that amount.

When purchasing an actual cash value policy, policyholders should talk with their insurance representatives about their options and the specific terms of the policy. They may also want to think about what would happen in the event of a loss, and discuss their needs with an insurance agent so that the most suitable insurance project is purchased. For example, for someone who works from home, the loss of a home is also the loss of an office, including office equipment and records, and this would therefore complicate a home insurance policy.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments

By drtroubles — On Jan 13, 2012

If you are looking at things like auto insurance online and home insurance you can get a good idea of how much your insurance policy is going to cost you. We have a huge collection of video games and electronics in our home so we wanted to make sure everything was covered in case of a fire or natural disaster.

I suppose it is good to know the actual cash value of the things in your life so you are covered in the event of a tragedy. We got our insurance policy after a neighbors home went up in smoke and they lost everything. They didn't have enough insurance and are really struggling now.

By Mae82 — On Jan 13, 2012

@manykitties2 - I think one of the only good things about knowing a vehicle actual cash value is that you are better able to plan in the event of an accident. I already have a good idea of what things are going to cost with the auto insurance companies my husband and I deal with if one of our cars ever gets totaled.

Thinking about how much you need on hand for a deductible and what you can get with your cash back is a nice thing to know. I was a bit disappointed too about the actual cash value of my car but better to know now then get a shock in the mail later on.

By manykitties2 — On Jan 12, 2012

Finding the actual cash value of your car can be rather enlightening. I was checking out car insurance rates and the actual cash value of your auto really figures in to how much your insurance costs and how much you get back when you do get in an accident.

I was horrified to learn that my car was only worth $1200. I admit my car is a bit old and weathered but it does an amazing job. Plus, how the heck are you supposed to get a new car with that little money? I suppose that would make an OK down payment on a new car but it still feels like taking a big loss.

Mary McMahon

Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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