What does 'ACV' stand for in insurance terms?

In insurance terms, 'ACV' stands for Actual Cash Value. This concept is crucial in property insurance, as it refers to the fair market value of an insured item at the time of loss, factoring in depreciation. When an insured property is damaged or destroyed, the payout from the insurer is often based on its ACV rather than its replacement cost. This means that the calculation of ACV takes into account the original cost of the property minus any depreciation for wear and tear over time, allowing for a more accurate representation of the item’s current worth. Understanding ACV is essential for policyholders to comprehend how their claims will be evaluated and what financial compensation they might expect in the event of a loss.