How is Actual Cash Value defined in insurance terms?

Actual Cash Value (ACV) is defined as the replacement cost of property minus depreciation. This definition takes into account not only how much it would cost to replace the damaged or lost item with a new one at current market prices but also factors in the reduction in value that occurs over time due to age, wear and tear, or obsolescence.

For example, if a homeowner has a roof that cost $20,000 to install ten years ago, its replacement cost today might still be around $20,000, but its actual cash value might be less due to depreciation, which reflects the roof's diminished usefulness and condition. Therefore, if the roof were to be damaged, the insurer would reimburse the homeowner based on its actual cash value, not just the cost to replace it outright with a new roof.

The other definitions do not capture the full concept of Actual Cash Value as accurately as the correct option. For instance, the value at the time of purchase does not account for changes in value due to time and condition, while the re-sale value could vary significantly and may not reflect the true cost to replace an item. Sentimental value is subjective and not a consideration in insurance valuations.