Define 'actual cash value' in property insurance.

The definition of 'actual cash value' (ACV) in property insurance refers specifically to the value of property at the time of loss, which is determined by taking the replacement cost and subtracting any depreciation. This method acknowledges that as property ages, its value decreases due to wear and tear, obsolescence, or other factors. Consequently, when a claim is filed, insurers calculate the ACV to ensure that the insured receives a fair compensation that reflects both the current market conditions and the condition of the property.

For example, if a homeowner has a roof that originally cost $20,000 but is now considered to be worth $10,000 due to depreciation, the insurance payout for that roof would reflect the actual cash value rather than the original purchase price or the full cost of replacement. This approach aligns with the principle of indemnity, which aims to put the insured back in the same financial position they were in prior to the loss without allowing them to profit from the situation.