What does paying the actual cash value of a television that is three years old exemplify?

Paying the actual cash value of a television that is three years old exemplifies contract indemnity. Contract indemnity is a principle in insurance that ensures that a policyholder is compensated for their loss, but not to the extent that they profit from it. Actual cash value (ACV) is typically calculated by taking the replacement cost of the item and subtracting depreciation, reflecting the item's value at the time of loss rather than its initial purchase price. This means that if a television is three years old and has lost value due to age and wear, the amount paid under an indemnity contract would account for this depreciation, offering a fair settlement for the loss while preventing any profit from the claim.

In contrast, replacement coverage would provide the cost to replace the television with a new one, regardless of its age. Actual cost replacement is similar to replacement coverage but typically focuses on replacing the item using its cash value after depreciation. A valued policy guarantees a set amount regardless of the current value or condition of the property covered, which would not apply in this scenario where the actual cash value is being used for compensation.