Actual cash value
In the property and casualty insurance industry, actual cash value (ACV) is a method of valuing insured property, or the value computed by that method.
Actual cash value (ACV) is not equal to
As an example: a man purchased a television set for $2,000 five years ago and it was destroyed in a hurricane. His insurance company says that all televisions have a useful life of 10 years. A similar television today costs $2,500. The destroyed television had 50% (5 years) of its life remaining. The ACV equals $2,500 (replacement cost) times 50% (useful life remaining) or $1,250.
This concept is different from the book value used by accountants in financial statements or for tax purposes. Accountants use the purchase price and subtract the accumulated depreciation in order to value the item on a balance sheet. Actual cash value uses the current replacement cost of a new item.
Other methods of insurance valuation
Insurance policies may be purchased capitalizing several different valuation methods. These include:
See also
References
- ^ This definition was cited favorably by the Wisconsin Court of Appeals. See Coppins v. Allstate Indemnity Company, Case 2013AP2739 (Wis. Ct. App. November 12, 2014), http://www.wicourts.gov/ca/opinion/DisplayDocument.html?content=html&seqNo=127373
- ^ "All About Insurance". Wednesday, 6 January 2021
- ^ "What is replacement cost coverage and actual cash value?". Friday, 19 May 2023