When is 'actual cash value' (ACV) used as the basis of loss settlement?

Actual Cash Value (ACV) is one of the two main loss settlement methods. ACV = replacement cost minus depreciation for age, wear and tear, and condition. ACV is used when the policy specifies it, typically: (1) Personal property under standard (non-endorsed) homeowners policies — most policies pay personal property losses on an ACV basis unless replacement cost coverage is added; (2) Some property types (older roofs, certain structures); (3) Auto insurance for total loss (ACV typically); (4) Some commercial policies. Calculating ACV: (1) Determine replacement cost — what it would cost today to replace with new property of like kind and quality; (2) Apply depreciation based on age, useful life, and condition; (3) Subtract to determine ACV. A 15-year-old roof at the end of its expected life: replacement cost $15,000; ACV might be $1,500-3,000 (substantial depreciation). The same logic applies to appliances, furniture, electronics. Disputes about depreciation are common; some adjusters use industry depreciation schedules; some negotiate based on specific item condition. Most homeowners policies offer replacement cost coverage as an endorsement (additional premium), giving the insured the cost to replace with new items rather than the depreciated value.