In the property and casualtyinsurance 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 replacement cost value (RCV). Actual cash value is computed by subtracting depreciation from replacement cost.[1] The depreciation is usually calculated by establishing a useful life of the item determining what percentage of that life remains. This percentage multiplied by the replacement cost equals the actual cash value.
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 valuationedit
Insurance policies may be purchased capitalizing several different valuation methods. These include: Replacement cost value (RCV), fixed value (guaranteed replacement cost) and actual cash value (ACV). Some policies will use different calculating methods depending upon the item. For example, the building may be insured at replacement cost value, the most of the contents insured at actual cash value and a few specific items at a fixed value (antiques). Policies may also include co-insurance clause or deductibles provisions which will impact the actual cash paid out by the insurance company.[2][3]
actual, cash, value, property, casualty, insurance, industry, actual, cash, value, method, valuing, insured, property, value, computed, that, method, equal, replacement, cost, value, computed, subtracting, depreciation, from, replacement, cost, depreciation, u. 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 replacement cost value RCV Actual cash value is computed by subtracting depreciation from replacement cost 1 The depreciation is usually calculated by establishing a useful life of the item determining what percentage of that life remains This percentage multiplied by the replacement cost equals the actual cash value 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 editInsurance policies may be purchased capitalizing several different valuation methods These include Replacement cost value RCV fixed value guaranteed replacement cost and actual cash value ACV Some policies will use different calculating methods depending upon the item For example the building may be insured at replacement cost value the most of the contents insured at actual cash value and a few specific items at a fixed value antiques Policies may also include co insurance clause or deductibles provisions which will impact the actual cash paid out by the insurance company 2 3 See also editCash valueReferences edit 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 amp seqNo 127373 All About Insurance Wednesday 6 January 2021 What is replacement cost coverage and actual cash value Friday 19 May 2023 nbsp This economic term article is a stub You can help Wikipedia by expanding it vte Retrieved from https en wikipedia org w index php title Actual cash value amp oldid 1183023144, wikipedia, wiki, book, books, library,
