Actual cash value is determined by subtracting what from the replacement cost of the property?

The concept of actual cash value (ACV) is crucial in insurance as it represents the value of property at the time of loss. ACV is calculated by taking the replacement cost of the property and subtracting depreciation. Depreciation accounts for the decrease in the property's value over time due to factors such as wear and tear, age, or obsolescence. This method provides a more accurate reflection of what the property is worth to the insured, as it considers how much the property has diminished in value since its purchase or installation.

When assessing claims, insurers typically calculate the ACV to determine how much they will pay the policyholder upon a covered loss. By subtracting depreciation from replacement costs, policyholders receive a settlement that reflects the current market value of the property, rather than just the cost of replacing it with a new one. This ensures that the compensation aligns with the actual worth of the property at the time of the loss.