How is the "actual cash value" of a property determined?

The "actual cash value" (ACV) of a property is determined by calculating the replacement cost of the property and then subtracting depreciation. This approach accurately reflects the value of the property at the time of loss or damage, taking into account factors such as wear and tear, age, and obsolescence.

Replacement cost considers what it would cost to replace the property with a new equivalent but does not include any upgrades or betterments. Depreciation is then applied to account for the decrease in value from its original condition over time. This method captures the current worth of the property, making it a fair basis for insurance payouts.

In contrast, determining ACV by estimating previous market value does not reflect current conditions or depreciative factors. Similarly, assessing the current value of similar properties may not account for specific conditions unique to the property in question, and evaluating the original purchase price adjusted for inflation ignores the actual wear and tear the property has experienced. Therefore, calculating replacement cost minus depreciation remains the most reliable method for ascertaining actual cash value.