AAMI Small Business Management Practice Test

Actual Cash Value (ACV) is best described as:

The purchase value of the property The current market value The replacement cost minus depreciation The policy limit

Correct Answer:

The replacement cost minus depreciation

Explanation:

Actual Cash Value is the amount you’d get for a loss that reflects how much the item is worth today after accounting for wear and age. It’s determined by taking the current replacement cost and subtracting depreciation, so you’re not paid the full new-item price if the item has aged. For example, replacing a five-year-old appliance today might cost $1,000, but with 40% depreciation due to age, the ACV payout would be $600. This differs from the purchase price (what you originally paid) and from current market value (which can be higher or lower than replacement cost). It’s also not the policy limit, which is the maximum the insurer will pay.

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