In property insurance, how is 'actual cash value' calculated?

Actual cash value (ACV) in property insurance is determined by taking the replacement cost of the property and subtracting depreciation. This approach reflects the current worth of the item, considering its age, condition, and the wear and tear it has gone through.

The calculation of actual cash value effectively provides a more realistic amount for the insured to receive in a claim, as it accounts for devaluation over time. By subtracting depreciation from the cost to replace the asset new, insurers ensure that policyholders do not receive a windfall but rather a fair compensation that reflects the property's true current value.

In contrast, the other options do not represent the correct methodology for determining ACV. For example, adding depreciation would inaccurately inflate the value rather than provide a true representation of the property’s worth at the time of the loss. Similarly, combinations that include market value or deductibles would not align with the standard definition of actual cash value in insurance practices.