Actual Cash Value vs. Agreed Value

What is the difference between Actual Cash Value (ACV) and Agreed Value?

Actual Cash Value (ACV) is defined as the replacement cost minus depreciation. Depreciation is the decrease in value over a period of time, usually as a result of age or wear and tear. Replacement cost is defined as the cost to replace damaged property with materials of like kind and quality.

For example, assume a car is purchased at $20,000. Five years later the car is estimated to have depreciated to a value of $10,000. The car is involved in a major accident and the cost to repair the damaged vehicle is estimated at $15,000. If the car is insured for the Actual Cash Value, you will receive $10,000 from your insurance carrier, since that is the current value of the car (replacement cost minus depreciation).   

Agreed Value means that coverage is provided for a pre-determined amount settled upon by both the insured and the insurance company.

Agreed value is less common for your standard auto insurance policy, but may be used for classic/collector cars, and sometimes boats or motorcycles. To insure  an item at an agreed value means that the carrier accepts a value submitted by the insured and the maximum pay out, in the event of total loss or theft, is the agreed upon amount.

When consulting with your insurance provider, it is important to know how the value of your property is determined, and what amount of coverage you have in the event that you have to file a claim.