What Is an ACV Settlement on a Home Insurance Claim?
It pays what your damaged item was worth, factoring in depreciation, not what a new replacement costs today.
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Why ACV might show up on your new policy
Most lenders want proof of a policy before closing, but not every policy pays the same way when something is damaged. Some homeowners policies settle claims on an actual cash value basis for certain things, often the roof, which means depreciation gets subtracted based on its age and condition. Others pay replacement cost, covering what it actually takes to fix or replace the item today. Your declarations page will say which one applies, sometimes with a separate line just for the roof even if the rest of the house is on replacement cost. If you're comparing quotes before closing, check this detail alongside the price. A cheaper policy with ACV on the roof can cost you far more out of pocket later than a slightly pricier one that pays full replacement cost.
Before you lock in a policy for closing, it's worth checking how each quote actually pays. One insurer's price might look lower because it settles roof claims on an ACV basis, leaving you to cover the depreciation yourself after a storm. Another at a similar price might pay full replacement cost. Comparing both terms, not just the number due at closing, shows which one actually protects what you're paying for.
How depreciation actually gets calculated
Depreciation on an ACV settlement isn't a flat percentage someone guesses at. Insurers typically use the item's age, its expected lifespan, and its condition before the damage to arrive at a number. A roof installed 12 years ago with a 25-year expected lifespan has used up about half its value. A claim might pay roughly half of what a new roof costs, minus your deductible on top of that. The exact method varies by insurer, and some use software that factors in regional material costs and labor, so two roofs of the same age can depreciate differently.
Depreciation matters most for anything with a shelf life. Roofing, siding, fencing, and sometimes water heaters or HVAC systems if they're scheduled separately all wear down on a schedule an insurer can calculate. A roof that's 20 years old going into a hailstorm might only net a few thousand dollars under ACV, even if replacing it costs much more. That gap is money paid out of pocket, on top of the deductible.
Recoverable depreciation is worth knowing about before closing. Some policies pay the ACV amount first, then release the depreciated portion after repairs are complete and proof is submitted. If a policy works this way, the homeowner eventually gets closer to full replacement cost, but has to front the gap and follow through on paperwork. Non-recoverable depreciation means that money is gone for good, no matter what happens next. The declarations page or the policy wording says which kind applies, and it's worth asking directly rather than assuming.
Anyone weighing a home with an older roof against a closing deadline should find out now whether the policy settles that roof on ACV terms. A home inspection report that notes roof age gives a rough sense of where the depreciation math will land. Knowing that number before filing a claim after a storm makes it possible to budget for the gap, or to choose a policy that doesn't leave the roof exposed as the one part of the house most likely to get damaged first.
What else gets settled on ACV besides the roof
Roofs get most of the attention, but ACV terms can apply to other parts of a house too. Personal property inside the home is a common one. Unless a policy specifically includes replacement cost coverage for belongings, furniture, electronics, and appliances often settle on ACV by default, meaning a five-year-old television pays out at its depreciated value, not what a new one costs. Detached structures like a shed, fence, or detached garage sometimes carry separate ACV terms even when the main dwelling is on replacement cost. The declarations page should break this out by category, and if it doesn't say clearly, the policy wording will.
Appliances and systems built into the house, like a water heater, furnace, or air conditioning unit, follow the same depreciation logic as a roof. These items have a known expected lifespan, so an insurer can calculate how much value they've used up before anything happens to them. A ten-year-old HVAC system damaged in a covered event might net a few hundred dollars under ACV, far short of replacing it. Some insurers offer an endorsement, an add-on to the base policy, that converts specific items to replacement cost for an added premium. Asking about this before closing costs little and can close a real gap.
Jewelry, art, and other high-value items sit outside this conversation entirely in most cases. These usually need to be scheduled separately, meaning listed by item with its own coverage limit, regardless of whether the rest of the policy is ACV or replacement cost. A policy silent on this just defaults to a low built-in limit for these categories, often a few thousand dollars total no matter what's actually owned. Anyone closing on a house with valuables worth insuring should ask directly whether scheduling is available and what it costs.
Comparing two quotes at closing means looking past the single number for personal property coverage and checking the settlement basis attached to it. A policy advertising a high personal property limit on an ACV basis can still leave a homeowner short after a fire or theft claim, once depreciation is subtracted from everything lost. A policy with a lower stated limit but replacement cost terms can pay out more in practice. The only way to know is to ask each insurer directly how personal property and built-in systems are settled, not just what the roof does.
Before you sign anything
Pull up the declarations page on any quote and find the settlement basis for the roof, personal property, and built-in systems. Ask directly if it isn't clearly stated. That line matters as much as the price.
