Registered Insurance Brokers of Ontario (RIBO) Practice Exam

What does actual cash value represent in the context of loss indemnification?

1. The original value of the asset

2. The replacement cost without depreciation

3. The depreciated value shown in financial statements

4. The estimated market value of the asset

The correct answer is: The depreciated value shown in financial statements

Actual cash value (ACV) refers to the value of an asset at the time of loss, taking into account its depreciation. This means that ACV represents what the asset is worth in its current condition rather than its original purchase price or the cost to replace it. In the context of loss indemnification, ACV is critical because it provides a fair assessment of value at the time of the loss, considering any wear and tear or obsolescence the asset may have experienced. While the depreciated value shown in financial statements is related to this concept, it may not fully capture how the market perceives the asset's value in real-world scenarios. The actual cash value is typically calculated as the replacement cost minus depreciation rather than solely reflecting the value noted in accounting records. Recognizing ACV as the depreciated value allows for more accurate compensation during the claims process, ensuring that the insured party is indemnified fairly based on the item’s worth at the time of loss.