Actual Cash Value (ACV)
Actual cash value (ACV) is the replacement cost of property less depreciation for age, wear or obsolescence, and forms the basis of indemnity in property insurance when cover is not written on a reinstatement-value basis.
Distinction from replacement value
Replacement value reflects the cost of reinstating property as new, while actual cash value additionally deducts age, wear and – for fashion-dependent or technically superseded goods – obsolescence. In commercial and industrial property insurance and in marine insurance, actual cash value typically applies when no new-value uplift has been agreed, or when a contractual actual-cash-value settlement clause takes effect, for example below a defined residual-value threshold.
Determination
The amount is established through expert appraisal, taking into account age, condition, useful life and market conditions of the affected property. For buildings, a percentage deduction from replacement cost is commonly applied.
Practical note
When a policy is converted from a new-value to an actual-cash-value basis – for instance following a change of ownership – the insurer owes a duty to explain the consequences for the indemnity payable in a loss. Incomplete advisory documentation can shift the burden of proof to the insurer’s disadvantage.
Legal basis
- CH: Art. 69–71 ICA/VVG (insurable value)