Property Insurance FundamentalsQuestion 149 of 474
Which statement BEST distinguishes replacement cost from actual cash value?
a.Both methods became identical in California after the 2018 wildfires, when Insurance Code §2051.5 required every homeowners policy to be written on a replacement cost basis
b.Replacement cost pays to repair or replace with like kind and quality without deduction for depreciation; ACV deducts depreciation
c.Replacement cost is paid net of sales tax and of contractor overhead and profit, while actual cash value is paid with neither of those amounts deducted
d.Replacement cost is always limited to 80% of the policy limit
Explanation
Replacement cost pays the current cost to repair or replace with like kind and quality, with NO depreciation deducted. ACV subtracts depreciation from that amount. The difference is what makes RC valuable for older homes and roofs.
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