Actual Cash Value

Actual cash value is the amount of money which would be required to replace an item. Unlike replacement value, actual cash value accounts for losses in value resulting from age and wear.

Actual cash value is calculated in this way:
Actual cash value = replacement value - value reductions based on age and wear

As a rule, actual cash value is lower than replacement value. Insuring your personal property up to its replacement value is generally more beneficial than getting actual cash value coverage.

Example: You paid 1000 francs for your bicycle when you bought it new, and it is now 5 years old. Buying a similar bicycle new today would still cost you 1000 francs. If your bicycle is insured up to its replacement value, you will receive a benefit of up to 1000 francs (minus a deductible, when applicable) in the case of a loss, which represents what you actually paid for the bicycle. Actual cash value insurance, on the other hand, would only cover the cost of buying a similar, 5-year-old bicycle. Depending on the estimate, the benefit could be around 500 francs.

Most Swiss household insurance policies provide replacement value compensation. However, certain items such as skis or bicycles may only be insured up to their actual cash value.

Unlike household insurance policies, Swiss liability insurance policies generally base benefits on actual cash value. If your neighbor ruins your carpet, for example, their liability insurance will only cover the actual cash value of the carpet.

The life span estimated for different items varies from one insurance provider to another. Bicycles and furniture are often assumed to have a 10-year life span. Computers have a life span of between 2 to 5 years. Clothes have a 3-year life span in most cases, while eyeglasses are typically designated life spans of between 3 and 6 years.

The actual cash value of your property goes down periodically in proportion to its life span. For example, 5 years after being purchased new, a bicycle would be halfway through its life span, and therefore would be worth half of its original purchase price (5 years / 10 years). Items which have reached the end of their life span would be considered to have no actual cash value as far as the insurance company is concerned.

Insurance providers use what are known as depreciation schedules to determine the actual cash value of your property. In some cases, the insurer might request information about an item directly from the manufacturer

Important: You can safely assume that the life spans which insurance companies designate to various items are fairly short, because insurers aim to minimize the benefits they have to pay out for claims. If you aren’t sure that the insurance company assigned the correct life span to your possessions, ask the manufacturer when those items were made and confront your insurer in the case of conflicting information.

More on this topic:
Household insurance compared
Replacement value explained

Expert Benjamin Manz
Benjamin Manz is CEO of moneyland.ch and an independent expert on banking and finance.
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