What does Actual Cash Value (ACV) measure in insurance?

Actual Cash Value (ACV) is a key concept in insurance that refers to the value of a property at the time of loss. This value is determined by taking the current replacement cost of the property and subtracting any depreciation that has occurred. By focusing on the condition and age of the property at the specific time of the loss, ACV provides a fair assessment of how much the insured party would receive from an insurance claim related to that property.

Understanding ACV is essential for policyholders, as it ensures they are compensated based on the value of their property just before the loss occurred, rather than its value when it was bought or its replacement cost without considering wear and tear. This approach fairly addresses the depreciation that affects property value over time, ensuring that settlements are equitable in relation to the actual financial impact of the loss.