What is the formula for actual cash value?

The formula for actual cash value (ACV) is calculated as replacement cost minus depreciation. This approach determines the current value of an asset by considering how much it would cost to replace the item at today's prices, while also accounting for the wear and tear or reduction in value that has occurred over time.

This method is essential in insurance claims because it reflects the value of a property or item in its current condition, rather than its original purchase price or the cost to replace it new. By using depreciation, which takes into account the age and condition of the item, insurers can ensure that they are providing a fair settlement that accurately reflects the value insured parties can expect to receive at the time of loss.

In contrast, other formulas presented do not accurately reflect the calculation of actual cash value. For instance, adding depreciation to replacement cost would lead to an overstated value, while subtracting or adding market values inappropriately strays from the principles of determining ACV, which is strictly defined by the relationship between replacement costs and depreciation.