In the property

Property insurance

Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance or boiler insurance. Property is insured in two main...

 and casualty

Casualty insurance

Casualty insurance, often equated to liability insurance, is used to describe an area of insurance not directly concerned with life insurance, health insurance, or property insurance. It is mainly used to describe the liability coverage of an individual or organization's for negligent acts or...

 insurance

Insurance

In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

 industry, Actual Cash Value (ACV) is a method of valuing insured property.

Actual Cash Value (ACV) is computed by subtracting depreciation from the replacement cost. The depreciation is usually calculated by establishing a useful life of the item and determining what percentage of that life remains. This percentage times the replacement cost gives the ACV.

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

Book value

In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or Impairment costs made against the asset. Traditionally, a company's 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. ACV uses the current replacement cost of a new item.

Other methods of insurance valuation

Insurance policies may be purchased utilizing several different valuation methods. These include: Replacement Cost Value

Replacement value

The term replacement cost or replacement value refers to the amount that an entity would have to pay to replace an asset at the present time, according to its current worth....

 (RCV), Fixed Value (Guaranteed Replacement Cost) and Actual Cash Value (ACV). Some policies will use different valuation 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

Coinsurance

Co-insurance is an insurance-related term that describes a splitting or spreading of risk among multiple parties.-In the United States:In the US insurance market, coinsurance is the joint assumption of risk between the insurer and the insured...

 clause or deductibles

Deductible

In an insurance policy, the deductible is the amount of expenses that must be paid out of pocket before an insurer will pay any expenses. It is normally quoted as a fixed quantity and is a part of most policies covering losses to the policy holder. The deductible must be paid by the insured,...

provisions which will impact the actual cash paid out by the insurance company.