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Contractor glossary

Actual cash value (ACV)

Updated

Definition

Actual cash value (ACV) is the value an insurer puts on damaged property at the time of the loss, usually figured as the cost to replace it minus depreciation for age and wear. On a roof claim, the first insurance check is typically based on it.

Also called: ACV

How ACV is figured

ACV starts from the replacement cost value (RCV): what it would cost today to replace the damaged roof with materials of like kind and quality. The adjuster then subtracts depreciation, an amount for the roof's age, wear and condition.

ACV = replacement cost value minus depreciation

The depreciation figure comes from the insurer's estimate and depends on the policy's terms and the rules in the homeowner's state. Don't guess it: read it off the claim paperwork.

Example: An adjuster prices a hail-damaged roof at $15,000 to replace and takes $5,000 of depreciation because the shingles are 14 years old. The ACV is $15,000 minus $5,000, or $10,000. With a $1,000 deductible, the first check is $9,000. On an ACV policy, that's the whole claim. On a replacement cost policy, the $5,000 of depreciation can be paid later, once the work is done. The numbers are made up for illustration.

ACV and replacement cost policies

What happens to the depreciation depends on how the policy settles the claim.

Policy settles at What the insurer pays Who covers the depreciation
Actual cash value ACV minus the deductible The homeowner, if they want a full replacement
Replacement cost Usually ACV minus the deductible first, then the held-back depreciation once the work is done The insurer, after the work is finished and documented

The held-back amount on a replacement cost claim is recoverable depreciation. Before you sign a claim job, ask the homeowner for the insurer's estimate and settlement letter, and have them confirm in writing which way the roof is being settled.

Why it matters to a roofer

  • It sets your first payment. The first insurance check is figured from ACV, not from your contract price. Plan materials and crew pay around what will actually arrive, and when.
  • It decides what the homeowner owes. On an ACV settlement, the gap between the claim and a full replacement price is theirs to pay, on top of the deductible. Put that number in the contract and walk them through it before anyone signs.
  • It shapes your payment schedule. Line up the deposit and progress payments with the claim's checks. How to invoice roofing jobs walks through the sequence.

Common mistakes

  • Treating the first check as the whole job. On a replacement cost claim, part of your price arrives only after the roof is finished and invoiced.
  • Promising that insurance covers it. Until you've seen how the claim settles, you don't know what the homeowner will owe.
  • Closing the gap with tricks. Never offer to absorb the deductible or pad line items to make an ACV settlement look whole. Rules on deductibles in contracts paid with insurance money vary by state, so check yours with your state's department of insurance.
  • Disputing depreciation for the homeowner. If the depreciation looks wrong, give the homeowner your photos and what you know about the roof's age and condition, and let them take it up with their insurer.
  • Confusing it with tax depreciation. Insurance depreciation is about what the damaged property was worth. It has nothing to do with the depreciation on your trucks and equipment at tax time.

If the adjuster's scope misses items, an insurance supplement asks to add them. A clear scope of work keeps your contract matched to what the claim actually covers, with anything extra priced as a retail upgrade the homeowner pays for.

Go deeper

Roofing guideHow to Invoice Roofing Jobs (Including Insurance Claims)How roofers invoice retail and insurance jobs: allowances, ACV and depreciation checks, deductibles, supplements, mortgage checks and lien waivers.Roofing guideHow to Price Roofing JobsPrice roofing jobs from real measurements: squares, pitch factors, waste, tear-off layers, decking allowances, code line items and insurance work.Roofing guideHow to Write a Roofing EstimateWhat goes in a roofing estimate: squares with pitch and waste, line items adjusters expect, code items, decking allowances, photos, warranties and payment terms.
Recoverable depreciationRecoverable depreciation is the part of a replacement cost insurance claim that the insurer holds back from the first payment and pays once the repairs are finished and documented. It's the difference between the replacement cost and the actual cash value.Insurance supplementAn insurance supplement is a request, made on the homeowner's claim, asking the insurer to add work or quantities its original estimate missed. On a roof, it usually covers items found at tear-off or measured short, backed by photos, measurements and line-item prices.Scope of workA scope of work is the written description of exactly what a job includes and what it excludes: the tasks, materials, quantities, locations and standards of finish. It's the part of an estimate or contract that defines what the price buys, so anything outside it needs a change order.DepositA deposit is a payment the customer makes before work starts, credited toward the final price. Contractors use it to cover materials bought for the job and to hold a place on the schedule. Some states limit how much a contractor can collect up front on home improvement work.

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