How is Actual Cash Value (ACV) calculated?

Actual Cash Value (ACV) is calculated by taking the replacement cost of an item and subtracting depreciation. The replacement cost refers to the amount it would take to replace the item with a new one of similar kind and quality, without deducting for wear and tear or age. Depreciation accounts for the loss of value over time, so by subtracting depreciation from the replacement cost, ACV provides a more accurate reflection of the current value of the item at the time of loss.

This method is widely used in property insurance to determine the payout amount after a loss occurs. It allows the insured to receive compensation that reflects the item's condition and age, rather than simply its original purchase price. The other options introduce different calculations not aligned with the standard method of determining ACV.