A claim pays either replacement cost (new) or actual cash value (depreciated). ACV subtracts depreciation for age and wear — often far less than what a new replacement costs.
The example
$12,000 roof, 6 of 20 years.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | 1 − 6/20 | 0.70 |
| 3 | ACV (12k × 0.70) | → $8,400 |
The formula
The formula:
How it works
How it works:
- Depreciation fraction = age ÷ useful life — how much value is used up.
- ACV = replacement cost × (1 − that fraction) — the depreciated value.
- Recoverable depreciation = replacement cost − ACV — paid later if you actually replace (on an RC policy).
- Floor depreciation so old items keep a minimum salvage value if the policy specifies.
Illustrative math only — not insurance, financial, or legal advice. Policy language, state regulation, and carrier rules govern actual claims, premiums, and coverage. Always read the policy and consult a licensed professional.
Try it: interactive demo
Replacement cost, age, useful life.
Variations
Depreciation amount
Value lost:
Recoverable depreciation
RC − ACV:
With salvage floor
Minimum value:
Pitfalls & errors
RCV vs ACV policy. ACV pays depreciated; RC pays new (often in two steps).
Useful life. Depreciation depends on the item’s expected life.
Not advice. Depreciation schedules vary by carrier — read the policy.
Practice workbook
Frequently asked questions
How do I calculate actual cash value in Excel?
What's recoverable depreciation?
What's the difference between RCV and ACV?
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