Actual Cash Value (ACV) may refer to the fair market value of an item or property that has been lost, destroyed, or damaged. This fair market value includes depreciation and is determined by taking the replacement cost of the item or property and subtracting depreciation.
Actual Cash Value in More Detail
Actual Cash Value is an important part of many insurance policies, as it is used to determine the amount of money the policyholder will receive if they make a claim. In general, Actual Cash Value is the cost of replacing an item or property, minus any depreciation that has occurred since it was originally purchased or acquired.
For example, if a policyholder has a two-year-old car that is destroyed in an accident, the Actual Cash Value could be determined by subtracting the depreciation value of the car from the current replacement cost of a similar car. This amount would be the Actual Cash Value for the policyholder’s car and the insurance company would then pay out the Actual Cash Value minus any applicable deductibles.
In short, Actual Cash Value is the value of an item or property that has been lost, destroyed, or damaged, minus any depreciation that has occurred since it was originally purchased or acquired. It is an important concept in insurance policies and is used to determine the amount of money that a policyholder will receive if they make a claim.
