Florida 2-20 General Lines Agent (Property, Casualty, Commercial Lines and Florida Law)General InsuranceEasy
A Florida insured submits a claim for property damage caused by a covered peril. The insurance policy states that the insurer will pay for the loss or damage to the covered property, not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality, subject to a reasonable deduction for depreciation. This description best defines which valuation method?
- AAgreed Value
- BReplacement Cost Value (RCV)
- CActual Cash Value (ACV)
- DStated Value
Show answer & explanationAnswer & explanation
Correct answer: C. Actual Cash Value (ACV)
Actual Cash Value (ACV) is defined as the cost to replace damaged property with new property of like kind and quality, less depreciation. The scenario explicitly mentions a 'reasonable deduction for depreciation', which is the key characteristic of ACV.
Why the other options are wrong
- A. Agreed Value policies pay the amount agreed upon at the time the policy was written, regardless of depreciation or replacement cost.
- B. Replacement Cost Value pays for new property without deduction for depreciation.
- D. Stated Value policies pay the lesser of the stated value, ACV, or repair cost, and do not inherently include a depreciation deduction as a primary valuation method.
Actual Cash Value (ACV)
A method of valuing insured property losses, calculated as the replacement cost of the property minus depreciation.
- Replacement cost minus depreciation
- Common in property insurance unless RCV is specified
- Accounts for wear and tear
Memory trick: ACV: Always Consider Value's Depreciation.