How is actual cash value defined in property insurance?

Actual cash value (ACV) in property insurance is defined as the replacement cost at the time of the loss, less depreciation. This means that when a claim is assessed, the insurer calculates how much it would cost to replace the damaged property with new property of similar kind and quality, then subtracts any wear and tear or depreciation that the property has experienced over time. This method reflects the true value of the property at the time of the loss, considering its age and condition.

Replacement cost provides an understanding of what it would take to replace the item completely, while taking depreciation into account gives a more accurate financial picture from the perspective of both the insurer and the insured. This definition ensures that policyholders are compensated fairly without overvaluation of the damaged property.