Property Insurance FundamentalsQuestion 208 of 474
Depreciation, when an insurer computes the actual cash value of damaged property, is measured mainly by the property's:
a.share of premium the insured has paid
b.drop in resale price since purchase
c.age, wear and remaining useful life
d.gap between cost and the policy limit
Explanation
Actual cash value is replacement cost minus depreciation, and depreciation estimates the value used up through age, wear and the remaining useful life of the item. The answer built on resale price confuses depreciation with market movement, which can rise or fall for reasons unrelated to wear. The premium an insured has paid has no bearing on how much value the property has lost.
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