Actual Cash Value
Actual Cash Value is a depreciated value. In other words, if a wristwatch is 10 years old and lost, the insurance company is not obligated to replace it with anything other than another, comparable 10 year old watch. However, insurance companies customarily elect to replace used with new, rather than subjecting policy holders to searching for a similar used item. The premium is higher for this kind of coverage, but it may be preferred because of the benefits and options available.
Agreed Value is an agreed payoff, tempered by a contractual language in the event of a full loss. No matter what the market value is at the time of loss, the value has been fixed and cannot be increased or decreased. Agreed Value policies contain language similar to the following: “If the itemized article is destroyed or lost, we will pay the amount of the coverage for the article. If the itemized article is partially lost or damaged, we will pay to either restore the item to it’s just before the loss, or make up the difference between the market value before the loss, we will pay the difference.