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Actual Cash Value: What Is It?

Property policies commonly refer to losses being settled on an actual-cash-value basis, usually somewhere in the loss-settlement provisions.

By Diane Richardson | Updated on July 31, 2006

Property policies commonly refer to losses being settled on an actual-cash-value basis, usually somewhere in the loss-settlement provisions. Fine, but exactly what is actual cash value?

In a recent breakout session at the National Underwriter’s ACE Conference in New Orleans, participants were asked to raise their hands if they could give a definition for actual cash value. The common response was, “Actual cash value is the replacement cost minus depreciation.” But is it? And, if it is, what is being depreciated? The cost of the materials? Labor? Overhead and profit?

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