A 12-year-old roof with a normal life of 20 years is destroyed by a covered windstorm. Under a replacement-cost (RC) loss settlement, how is the loss generally paid?
a.The salvage value of the damaged shingles only, calculated as whatever the scrap material would bring at resale
b.The cost to replace the roof with new materials of like kind and quality, without deduction for depreciation, subject to the policy limit and any conditions in the loss settlement clause
c.A flat 50% of the original cost of the roof, regardless of its age, its condition, or current material prices
d.Only the depreciated value of the old roof, arrived at by subtracting twelve years of wear from its twenty-year life, with no allowance toward a new one, leaving the insured to absorb the entire remaining difference out of pocket
Explanation
Replacement cost coverage pays the cost to repair or replace with new materials of like kind and quality, without subtracting physical depreciation, subject to the policy limit and any loss-settlement conditions. Actual cash value would subtract depreciation, leaving only the depreciated value.
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