Property Insurance FundamentalsQuestion 199 of 215
Which statement BEST distinguishes a loss-settlement clause that pays on an actual cash value (ACV) basis from one that pays on a replacement-cost (RC) basis?
a.ACV pays more than RC because it includes sentimental value
b.RC and ACV always pay the same amount; only the deductible differs
c.ACV pays the cost to repair or replace less a deduction for physical depreciation; RC pays the cost to repair or replace with like kind and quality without subtracting depreciation, usually subject to actually replacing the property and to the policy limit
d.RC pays only after a court order, while ACV is paid immediately
Explanation
ACV pays the cost to repair or replace minus a fair and reasonable deduction for physical depreciation. RC pays the cost to repair or replace with materials of like kind and quality without subtracting depreciation, typically conditioned on actually replacing the damaged property and subject to the policy limit. RC settlements often pay ACV first and the depreciation holdback after the insured replaces the property.
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