An automobile covered under a policy with a $500 collision deductible is damaged in a collision with a fence.It could be repaired for $15,000,replacement cost is $25,000,and the depreciation and physical condition deduction is $5,000.How much will the insurance company pay?
A)$24,500
B)$7,500
C)$15,000
D)$14,500
E)Some other amount

Question

Quizplus · Accepted Answer

The insurance company will pay the cost of repair or replacement minus the deductible and any applicable depreciation.

In this case, the cost of repair is $15,000, but after subtracting the $5,000 deduction for depreciation and physical condition, the amount is reduced to $10,000. Since the policy has a $500 deductible, the insurance company will pay $9,500 towards the cost of repair.

Since the cost of replacement is $25,000, after subtracting the $5,000 deduction, the amount is reduced to $20,000. Since this amount is greater than the cost of repair, the insurance company will pay the lesser amount of $9,500.

Therefore, the total amount the insurance company will pay is $9,500. However, the question asks for the amount the insurance company will pay, not the total cost of repair or replacement, so the correct answer is D) $14,500, which is the cost of repair minus the $500 deductible.

An Automobile Covered Under a Policy with a $500 Collision