Actual Cash Value (ACV) represents which of the following in property insurance?

Actual Cash Value (ACV) represents which of the following in property insurance?

• A. Replacement cost
• B. Depreciated value
• C. Total current market value
• D. Policy limit

Answer: (B)

Actual Cash Value shows an item’s value after accounting for wear and tear. It reflects the replacement cost of the item minus depreciation, meaning what the item is worth in its current condition rather than what it would cost to buy new or what you could get selling it today. For example, a replacement cost of a new sofa might be $1,000, but if it’s 5 years old and has depreciated by $600, the ACV would be $400. This differs from replacement cost value (paying to replace with a new item), market value (what you could sell it for), and the policy limit (the maximum payout regardless of value). So ACV corresponds to the depreciated value.

Actual Cash Value shows an item’s value after accounting for wear and tear. It reflects the replacement cost of the item minus depreciation, meaning what the item is worth in its current condition rather than what it would cost to buy new or what you could get selling it today. For example, a replacement cost of a new sofa might be $1,000, but if it’s 5 years old and has depreciated by $600, the ACV would be $400. This differs from replacement cost value (paying to replace with a new item), market value (what you could sell it for), and the policy limit (the maximum payout regardless of value). So ACV corresponds to the depreciated value.