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April 14, 2017

Last Updated on November 16, 2021 by info@pnclearning.com

Actual Cash Value (ACV) is one of the ways insurers determine the insurance value of something. This is important because it affects how much the insurer will pay out in the event of a claim.

To put it simply, the Actual Cash Value of your asset is its replacement cost minus depreciation.

There are 5 ways to calculate ACV:

1. Formula-Cost Approach: This is the classic “replacement cost minus depreciation” method.

2. Market Value: This approach relies on experts to assess the value of the property before and after the loss. The disadvantage of this method is that it can be difficult to accurately assess the fair value of the property and may it not be equal to the actual loss incurred by the insured.

3. Income Method: This approach uses a net income multiplied by capitalization rate formula to calculate the “value” of the property. This approach is typically used for dilapidated, income-producing property.

4. True Value to Owner: This method is used when the insured believes that other methods fail to take into account some special circumstances (for example, an insured building might be very well maintained for its age).

5. Broad Evidence: This approach combines all of the above methods to get an approximate value.

 

This article was originally written for Insuranceopedia

Jacques Wong is the CEO and Director of Education at PNC Learning. An award-winning licensed insurance broker with over 15 years of experience in both education and the insurance industry, Jacques is recognized for his expertise and effective communication strategies. He achieved the highest provincial scores on his CAIB* 3 and CAIB* 4 exams and contributes to leading insurance publications. Jacques is dedicated to making insurance knowledge accessible for everyone through his unique approach and online content.

Jacques Wong

 Jacques wong

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