Property Insurance FundamentalsQuestion 209 of 474
A roof with a 20-year useful life is 15 years old when hail destroys it. Replacement cost is $16,000, the roof is settled at actual cash value, and the deductible is $1,000. The insurer pays:
a.$4,000
b.$11,000
c.$15,000
d.$3,000
Explanation
Fifteen of the twenty years of life are used up, so depreciation is 75% of $16,000 and the actual cash value is $4,000; subtracting the $1,000 deductible leaves $3,000. The $4,000 figure stops before the deductible. The $15,000 figure settles at replacement cost and ignores depreciation entirely, and $11,000 comes from depreciating only 25% of the roof.
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