What is meant by "actual cash value" in insurance?

"Actual cash value" refers specifically to the value of property after accounting for depreciation. This means that when calculating actual cash value, one evaluates how much the property is worth at the time of loss, factoring in any deterioration or reduction in value since it was originally purchased. This method is used by insurers to determine how much they will pay out on a claim for damaged or lost property.

This understanding illustrates how actual cash value takes into consideration the current state of the property rather than just its original purchase price. The initial purchase price does not reflect the asset's current market value, while the maximum possible payout pertains to limits set by policy rather than the valuation method. Additionally, life insurance payouts are based on the sum insured but do not relate to property valuation principles, further emphasizing the unique application of "actual cash value" in property insurance.