Which term defines the allowance made for depreciation when calculating an item's value at the time of loss?

The term that defines the allowance made for depreciation when calculating an item's value at the time of loss is "Actual Cash Value" (ACV). This concept is essential in insurance as it represents the amount it would cost to replace or repair a damaged item, minus any depreciation that has occurred since the item was new.

In this context, depreciation takes into account wear and tear, age, and obsolescence, which collectively affect the current value of an item compared to its original purchase price or replacement cost. When an insured property is evaluated for a claim after loss or damage, the insurer will determine the ACV to arrive at a fair settlement amount that reflects its value at the time of loss.

Understanding Actual Cash Value is crucial for policyholders and agents alike, as it impacts the coverage amounts and may influence decisions on purchasing replacement cost coverage versus actual cash value coverage in their insurance policies.