A method of loss reimbursement for damage caused by an item covered by insurance. Sometimes interpreted as fair market value, actual cash value represents the cost to replace the damaged item with new property of like kind and quality, minus depreciation.
This method of payment dictates only partial reimbursement due to use, age, or wear and tear. For example: to replace your stolen bike, which you bought for $500 but is now valued at $200 because of depreciation, your insurance company will pay you $200.
Though actual cash value coverage protects items on a low level by paying out less than other compensation methods, it represents less risk to the insurance company. It helps the insured save money on insurance.