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Question: 1 / 475

What does the term "actual cash value" generally refer to in insurance?

Replacement cost of new items

Market value at the time of loss

The term "actual cash value" in insurance typically refers to the market value of an item at the time of loss, which is determined by calculating the cost to replace the item minus depreciation. This means that actual cash value takes into account how much the item is worth in the current market rather than what it originally cost or what it would cost to replace with a new item.

This concept contrasts with replacement cost, which would cover the cost to replace an item with a new equivalent without deducting for depreciation. The purchase price and original cost do not reflect the item's value at the time of loss, as they do not account for depreciation and market fluctuations. Thus, defining "actual cash value" in terms of market value accurately reflects its use in insurance policies where it is important to evaluate the current worth of an insured item after considering wear and tear over time.

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Purchase price of the item

Original cost of the item

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