Actual Cash Value

Posted in Finance, Accounting and Economics Terms, Total Reads: 668

Definition: Actual Cash Value

Actual cash value determines the amount a policyholder will receive for the damage of the insured goods after considering its replacement cost and subtracting the depreciation costs of the goods.

In other words, it is the cost to replace with new product/goods, less depreciation

Actual cash value=Replacement cost-Depreciation

It is mostly used in insurance companies to find out the fair value to be paid to policyholders considering the cost of replacing those goods at today’s price and the depreciation cost of the damaged goods.

For example,

Suppose a policyholder X had insured his car worth 10000$ with XYZ insurance company and after a year the car met with an accident and got damaged. Now the present replacement cost for buying the same car is 10000$ but the car has been used for a year and depreciation cost is 1000$.So now the actual cash value comes out to be 9000 $(10000-1000).

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