Valuing your equipment: replacement cost vs ACV vs agreed value
Commercial inland marine insurance is designed to protect mobile, specialized, or high-value equipment—tools, machinery, cameras, medical devices, construction gear, and property that doesn’t sit neatly inside a building. But the most important part of this coverage often isn’t the limit—it’s the settlement language.
Replacement cost, actual cash value (ACV), and agreed value sound similar, but they can produce dramatically different claim payments—especially when supply chains are tight, equipment is customized, or resale markets don’t reflect real-world replacement costs. This guide explains how each valuation method works and how to avoid unpleasant surprises after a loss.
Why valuation language matters more than the premium
Two policies can list the same limit and premium and still pay very different amounts on the same loss.
- Inland marine claims are equipment-heavy: losses often involve theft, damage in transit, or jobsite accidents.
- Markets move fast: inflation, tariffs, shortages, and discontinued models distort “book values.”
- Specialization breaks assumptions: custom rigs and professional equipment don’t depreciate like consumer goods.
Limits tell you the maximum a policy can pay. Valuation language determines what it actually will pay.
Actual Cash Value (ACV): depreciated payout
ACV pays the value of the equipment at the time of loss, accounting for age, wear, and depreciation.
- How it works: replacement cost minus depreciation for age and condition.
- Lower premiums: ACV is often the least expensive option.
- Higher owner contribution: you fund the gap between the claim check and replacement.
ACV often relies on secondary market data. For specialized tools, that data may reflect liquidation or auction pricing—not what it costs to get back to work.
ACV protects balance sheets, not continuity. It’s designed to value assets—not restore operations.
Replacement Cost (RC): rebuilding functionality
Replacement cost coverage pays what it costs to replace damaged equipment with new property of like kind and quality.
- No depreciation deduction: age does not reduce the settlement.
- Function-focused: designed to put equivalent equipment back in service.
- Higher premiums: reflects the higher expected claim severity.
RC coverage often requires that you actually replace the item. Some policies initially pay ACV and release the depreciation after proof of replacement.
Replacement cost is about restoring capability—not reimbursing yesterday’s value.
Agreed Value: certainty for specialized equipment
Agreed value coverage sets the value of an item in advance. If it’s a total loss, that amount is paid—no depreciation debate.
- Value set upfront: based on schedules, invoices, or appraisals.
- No depreciation disputes: settlement bypasses ACV calculations.
- Ideal for: custom builds, rare equipment, modified vehicles, and hard-to-replace assets.
Agreed value must be kept current. If market prices rise and schedules aren’t updated, certainty turns into underinsurance.
Agreed value trades flexibility for clarity—when precision matters more than averages.
How volatility changes the math
Inflation and supply constraints magnify the differences between valuation methods.
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Rising replacement costs:
RC responds to price spikes; ACV does not.
A five-year-old machine may be “worth” far less than what it costs to replace in today’s market.
- Long lead times: Delays can trigger rental costs or downtime not reflected in ACV payouts.
- Discontinued models: Replacement may require upgraded or alternative equipment—raising true cost beyond historical values.
In volatile markets, depreciation assumptions age faster than the equipment itself.
Which valuation fits which scenario?
The “right” choice depends on how the equipment is used—and what failure actually costs your business.
- ACV fits: older, easily replaced items where downtime is manageable and cash reserves are strong.
- Replacement cost fits: core operational equipment where continuity matters more than accounting value.
- Agreed value fits: unique, modified, or high-value items where disputes or delays would be catastrophic.
Mixed programs are common. Many inland marine policies combine blanket RC coverage with scheduled agreed value items.
The best valuation strategy matches how fast you need to be back in business.
Mistakes that shrink claim payments
Most valuation problems aren’t discovered until after the loss.
- Outdated schedules: agreed values that haven’t been updated for years.
- Assuming RC applies: policies default to ACV unless RC is clearly stated.
- Blanket limits too low: inflation erodes capacity across all items.
- No proof of replacement: delaying depreciation recovery under RC forms.
Valuation errors are silent until the claim—then they’re very loud.
Common questions
Does replacement cost always mean “brand new”?
No. It typically means new property of like kind and quality. Exact replacements may not exist.
Can agreed value apply to only some items?
Yes. High-value or specialized equipment is often scheduled separately while the rest remains blanket-rated.
Is ACV ever the right choice?
Yes—when equipment is non-critical, easily replaced, or when premium savings outweigh downtime risk.
Valuation determines recovery
Inland marine insurance isn’t just about listing equipment—it’s about deciding how losses are measured. Replacement cost, ACV, and agreed value answer very different questions. In volatile markets or specialized operations, choosing the right language can mean the difference between a quick recovery and a prolonged shutdown.