Property and valuation
Actual cash value
Actual cash value is a settlement method that pays the value of damaged property at the time of loss, typically reflecting replacement cost reduced by depreciation.
Reviewed September 2026 · Exam outline effective September 1, 2026
In plain English
An ACV settlement pays what the item was worth when it was damaged, not what a new one costs. That reflects indemnity: a ten-year-old roof had ten years of life consumed before the storm arrived, and the payment recognizes that.
Different approaches exist for arriving at the figure, including replacement cost less depreciation, fair market value, and broader evidence of worth. The point for exam purposes is that ACV is a depreciated measure of value at the time of loss.
Why the exam tests it
Valuation is one of the most reliably tested property mechanics, and ACV is the baseline against which replacement cost is compared.
The trap
Ignoring depreciation because the question mentions the cost of a new item. If the settlement basis is ACV, the new-item price is an input, not the answer.
Worked example
A roof with a twenty-year expected life is damaged in year ten and would cost 20,000 to replace. On an ACV basis, roughly half the useful life had been consumed, so the settlement reflects the depreciated value rather than the full replacement figure.
Full course
Study this with the complete Texas All-Lines course
This concept is covered in depth in the "Actual Cash Value, Replacement Cost & Depreciation" lesson, alongside every other topic on the content outline.
Related terms
- Replacement cost valueReplacement cost value is a settlement method that pays the cost to repair or replace damaged property with new property of like kind and quality, without deducting depreciation.
- DepreciationDepreciation is the reduction in value of property from age, wear, and obsolescence, subtracted from replacement cost to arrive at actual cash value.
- IndemnityIndemnity is the principle that insurance restores the insured to approximately the financial position held before the loss, without producing a profit from the event.
- Policy limitA policy limit is the maximum amount an insurer will pay for a covered loss under a particular coverage, stated on the declarations page.
Compared side by side
- ACV vs. RCVActual cash value and replacement cost value are two ways of answering the same question: how much is the insurer obligated to pay for damaged property? They frequently produce different numbers from identical loss facts, which is exactly why the Texas All-Lines exam tests them together.
- Coinsurance vs. DeductibleBoth coinsurance and deductibles reduce what an insurer pays, which is why candidates confuse them. They operate on entirely different logic and at different points in the calculation.
- Total Loss vs. Partial LossWhether a loss is total or partial changes the settlement approach, the documentation, and which provisions matter most. It is a threshold classification rather than a detail.
Exam topics using this term
- Indemnity and insurable interestWhy insurance restores rather than enriches, and why a claimant must stand to lose something to collect.
- Actual cash value and replacement cost on the Texas All-Lines examHow valuation questions are built, why depreciation is the hinge, and the order of operations that produces the correct settlement figure.
- Coinsurance and commercial property valuation on the Texas All-Lines examThe coinsurance formula, why it penalizes underinsurance on partial losses, and the order of operations the exam expects.
- Property estimating and scope of repairs on the Texas All-Lines examHow the exam tests scope before price, why documentation supports the estimate, and how depreciation enters the estimating process.
- Answer elimination techniqueHow to remove wrong options systematically instead of searching for the right one by recognition.
Sources
- Pearson VUE — Texas Department of Insurance licensing exams
Scheduling, candidate handbook, content outlines, test-center rules, and application timing. Reviewed 2026-07-21.
Requirements, fees, forms, exam details, and deadlines can change. Verify the current rule with the linked authority before scheduling, applying, renewing, or handling a real claim.
For exams on or after September 1, 2026. If your exam is scheduled earlier, use the outline that applies to your exam date. Texas Exam Academy is independent exam preparation and is not affiliated with or approved by the Texas Department of Insurance or Pearson VUE. Verify current eligibility, fees, forms, and requirements with the responsible authority.