Dwelling Policy (DP)Question 274 of 474
A basic form dwelling loses a roof section that costs $12,000 to replace and has depreciated $4,000. Before any deductible, the policy pays:
a.$4,000, the amount by which the old roof depreciated
b.$12,000, the full cost of installing a new roof
c.$8,000, the depreciated value of the damaged roof
d.$6,000, one half of the roof's replacement cost
Explanation
Actual cash value is replacement cost less depreciation: $12,000 minus $4,000 leaves $8,000, and the deductible then comes off that figure. Paying the full $12,000 would apply the broad or special form's replacement-cost settlement, and paying $4,000 hands the insured the depreciation instead of the value that was actually destroyed.
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