Florida 2-20 General Lines Agent (Property, Casualty, Commercial Lines and Florida Law)General InsuranceMedium
A Florida insured's property policy contains a deductible of $1,000. After a covered loss, the insurer determines the actual cash value (ACV) of the damaged property is $15,000, and the replacement cost value (RCV) is $20,000. If the policy pays on an ACV basis, what is the amount the insured will receive?
- A$15,000
- B$20,000
- C$14,000
- D$19,000
Show answer & explanationAnswer & explanation
Correct answer: C. $14,000
The policy pays on an ACV basis, which is $15,000. From this amount, the deductible of $1,000 must be subtracted. Therefore, the insured receives $15,000 - $1,000 = $14,000.
Why the other options are wrong
- A. This is the ACV, but the deductible has not been subtracted.
- B. This is the RCV, and the deductible is not subtracted.
- D. This is RCV minus deductible, but the policy pays ACV.
Actual Cash Value (ACV)
Replacement Cost (RC) minus depreciation. It represents the current market value of the property at the time of loss.
- Common valuation method in property insurance.
- Accounts for wear and tear.
- Often results in a lower payout than Replacement Cost.
Memory trick: ACV minus the deductible is what you'll collect, don't forget the depreciation effect.