What does Actual Cash Value (ACV) take into account when calculating a loss?

Actual Cash Value (ACV) is calculated by taking the cost to repair or replace an item and then subtracting depreciation. This method reflects the item's current value, considering its age, wear and tear, and condition at the time of the loss. For instance, if a ten-year-old computer is damaged, the insurer would assess what it would cost to replace it with a similar model, then subtract the depreciation to arrive at the value for the claim.

This approach recognizes that items lose value over time, and therefore, provides a more equitable settlement that aligns with the item’s worth at the time of the loss rather than its original purchase price. It contrasts with approaches like replacement cost, which would not factor in depreciation, and the full market value, which could represent a price not reflective of the actual wear and tear on the item. Stated amount would refer to a predetermined sum that may not adjust for depreciation, thus not aligning with how ACV is defined.