In the property and accident insurance industry, Actual Cash Value (ACV) is a method for assessing an insured property, or a value calculated by that method.
The Actual Cash Value (ACV) is not the same as the replacement cost (RCV) value. ACV is calculated by reducing the depreciation of the replacement cost. Depreciation is usually calculated by specifying the useful life of the item that determines what percentage of the remaining life is. This percentage is multiplied by the replacement cost equal to ACV.
For example: a man bought a television set for $ 2,000 five years ago and was destroyed in a storm. The insurance company says that all televisions have a 10-year useful life. Similar television is currently worth $ 2,500. The ruined television has 50% (5 years) of the rest of its life. ACV is equivalent to $ 2,500 (replacement cost) multiplied by 50% (useful life remaining) or $ 1,250.
This concept is different from the book value used by the accountant in the financial statements or for tax purposes. Accountants use the purchase price and reduce the accumulated depreciation to assess items on the balance sheet. ACV uses the current replacement cost of a new item.
Video Actual cash value
Other methods for insurance rating
Insurance policies can be purchased using different assessment methods. These include: Cost Recovery (RCV), Fixed Value (Guaranteed Replacement Cost) and Actual Cash Value (ACV). Some policies will use different assessment methods depending on the item. For example, buildings can be insured at the Replacement Cost Value, most of the content insured on the Actual Cash Value and certain items with Fixed Value (antiques). Policies can also include terms of a co-insurance clause or deductibles that will impact on the cash actually paid by the insurance company.
Maps Actual cash value
See also
Cash value
References
Source of the article : Wikipedia
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