Jerry has a property insurance policy on a building that would cost $200,000 to replace. His insurance policy is written on an actual cash value basis. His building suffers fire damage that has a replacement cost of $50,000. The building is 2 years old, with an estimate useful life of 20 years. How much will he collect for the fire damage?
A) $5,000
B) $10,000
C) $25,000
D) $45,000

Question

Quizplus · Accepted Answer

Actual cash value is calculated as replacement cost minus depreciation. The building has depreciated by 2/20 of its value, which is 10%. Therefore, the depreciation on the $50,000 damage is $5,000 (10% of $50,000). The actual cash value is $50,000 - $5,000 = $45,000.

Jerry Has a Property Insurance Policy on a Building That