What does the term "actual cash value" (ACV) mean?

The term "actual cash value" (ACV) is defined as the replacement cost of an item minus any depreciation that has occurred since the item's purchase. This means that ACV reflects the current worth of the item, taking into account its age and condition.

In practical terms, if a homeowner had a television that originally cost $1,000 and it has depreciated in value over several years, the ACV would be less than the original purchase price. Adjustments for age, wear and tear, and used condition are taken into account, thus leading to a payment that is representative of what the item would be worth in the marketplace today, rather than what it would cost to replace it with a brand-new model.

This definition ensures that policyholders receive a fair settlement that considers the diminished value of their property, differentiating ACV from terms that might imply full replacement or original purchase cost.