Actual cash value is determined by calculating the cost of repairing or replacing damaged property, less depreciation and the effects of wear and tear over time. If an item is damaged beyond repair, actual cash value reflects the market value of the item before the damage took place, less depreciation and the effects of wear and tear over time.
If your couch was worth about $200 dollars in a yard sale before it became damaged, but would currently cost $1000 to replace with a new couch of similar size and style, the actual cash value of your couch would probably be around $200, not $1000. Actual cash value is calculated by subtracting the effects of wear and tear over time, and depreciation, from the actual replacement cost.
Insurance terms to know - Actual Cash Value
Written by Sullivan Insurance Agency on Feb 17, 2015