Actual Cash Value Explained

Overview of Actual Cash Value

Actual cash value is a term used by insurers to determine how much money is needed to replace an item. This term is often used if a policyholder’s property has been lost, stolen, or if it has been damaged beyond repair. The term is used for a variety of types of property, from homes to vehicles.

The actual cash value of a piece of property will be calculatedto determine how much the policyholder will receive for it. Bank Rate says that actual cash value is calculated by estimating the replacement value of the insurance property (if it were purchased new) and then subtracting the depreciation value of the item.  

Most things of value, such as a vehicle, decrease in value over time. For example, if a person purchased a car five years ago, it would not be worth the same amount as a car purchased new.

Calculating the actual cash value of certain items can be challenging, such as antiques or art. While the value of most things decreases over time, antiques often go up in value. And because art is typically one of a kind, it can be difficult to compare it to the value of other items.

The idea of actual cash value works well for most items, because theoretically, receiving the actual cash value of an item can enable a policy holder to purchase an item of comparable value. The Balance notes that policyholders may need to provide information about the insured property to make sure they are properly compensated. 

What Kind of Lawsuits Are Filed Over Actual Cash Value?

In some cases, policyholders may file lawsuits against insurance providers if they feel that they have not been fairly compensated for their property.

Insurance Journal notes that property insurance can become complicated when considering which method is used to calculate an item’s value: Actual cash value or replacement value, which can greatly change how much a policyholder receives. 

Insurance value can vary by state, depending on state law. Some states require insurance companies to pay other related costs, like taxes and fees, in addition to the value of the vehicle. Yet not all insurance companies pay these related costs in a claim for total loss.

If a policyholder files a lawsuit against an insurer, the court may determine that the insurer shortchanged the policyholder on a claim, depending on how the benefits were calculated.

How Can Lawyers Help?

If you worry that you have not received enough in insurance benefits, lawyers can help you form the strongest case possible to file a lawsuit against your insurer. This has notably occurred in the auto industry, with policyholders claiming that insurers do not provide actual cash value when awarding benefits in car insurance claims.

Lawyers can help calculate the value of your property and determine what the laws are in your state for actual cash value claims.