What is 'actual cash value'?

'Actual cash value' refers to the value of property at the time of loss, accounting for depreciation. This means that when determining actual cash value, the current market value of the property is adjusted to reflect the decrease in worth due to age, wear and tear, or obsolescence. This method is commonly used in insurance claims to establish the compensation an insured party should receive after a loss, ensuring that the payout reflects the property's value just prior to the loss rather than its replacement cost or original value.

This approach benefits insurers by limiting payouts to the property's depreciated value instead of the potentially higher costs associated with replacing the item. Therefore, when a claim is filed, it allows for a fair and accurate assessment that aligns with the principles of indemnity, ensuring that the insured party does not profit from their loss.

Other options do not provide an accurate definition of 'actual cash value.' For instance, simply stating market value without considering depreciation overlooks the fundamental aspect of actual cash value, which inherently includes depreciation factors. Similarly, a total insured value without considerations for depreciation misrepresents how actual cash value is established in claims evaluations.