Which of the following best describes "actual cash value" in insurance terms?

Which of the following best describes "actual cash value" in insurance terms?

• A. Replacement cost minus depreciation
• B. The retail price of a new item
• C. The cost of repairs without depreciation
• D. The total cost of the policyholder’s investment

Answer: (A)

Actual cash value (ACV) is defined as the replacement cost of an item minus any depreciation that may have occurred. This means that when a claim is made, the amount the insurance company will pay is based on the current value of the item being insured, taking into account how much it has decreased in value over time due to age, wear and tear, or obsolescence. This method of valuation ensures that policyholders are compensated fairly for their property rather than receiving a lump sum that may not accurately reflect its worth at the time of loss. Understanding ACV is vital for both insurers and policyholders as it influences coverage decisions, claims processing, and overall financial protection when facing damage or loss of property.

Actual cash value (ACV) is defined as the replacement cost of an item minus any depreciation that may have occurred. This means that when a claim is made, the amount the insurance company will pay is based on the current value of the item being insured, taking into account how much it has decreased in value over time due to age, wear and tear, or obsolescence.

This method of valuation ensures that policyholders are compensated fairly for their property rather than receiving a lump sum that may not accurately reflect its worth at the time of loss. Understanding ACV is vital for both insurers and policyholders as it influences coverage decisions, claims processing, and overall financial protection when facing damage or loss of property.