Question

Andrew had a fire in his house that destroyed his big screen TV. He bought it 2 years ago and, according to the insurance company, it has a 5 year life. If it would cost $2,000 to replace it today, how much would Andrew receive from the insurance company if he has actual cash value coverage?

Answer 1

Answer:

$1,200

Explanation:

Actual Cash Value defined either as i) the fair market value of the item, or ii) the Replacement Cost of the item minus depreciation based upon the age of the item that was damaged.

Replacement cost = $2,000

Depreciation= 3 years remaining of it's life = 3/5 × 100 = 60%

Actual cash value = $2,000 × 60% = $1,200.

Answer 2

Answer:

$1200

Explanation:

Actual Cash Value of a product is the fair market value of the product or it can be said to be the Replacement Cost of the product minus depreciation of the product based upon the age of the product that was damaged.

Replacement cost = $2,000

Depreciation = 5 years - 3 years ( remaining years ) = 2 years

= 2/5 * 100% = 40%

3 years remaining of the insurance  = 100% - 40% = 60%

therefore the Actual cash value of the big screen TV = $2,000 × 60% = $1,200.