Question

What amount would a person with actual cash value (ACV) coverage receive for two-year-old furniture destroyed by a fire? The furniture would cost $1,000 to replace today and had an estimated life of five years.

Answer 1

Answer:

$600

Explanation:

The actual cash value coverage to be received for the two-year old furniture is equivalent to the replacement cost today minus estimated depreciation amount that would have been charged on the furniture till date.

replacement cost is $1,000

estimated depreciation till date=$1000/useful life*number of years the furniture has been put to use

estimated depreciation=$1,000/5*2=$400

actual cash value coverage =$1000-$400=$600

All in all,the amount that a person with actual cash value coverage would receive today on the furniture is $600