Assume that a building has a replacement cost of $250,000 but is insured for only $150,000. The roof on the house

Assume that a building has a replacement cost of $250,000 but is insured for only $150,000. The roof on the house is 10 years old and has a useful life of only 20 years. The roof is severely damaged by hail and needs to be replaced. The cost of the new roof is $20,000. Ignoring the deductible. What is the cash value?

Expert Solution

Actual cash value takes in to account the depreciation but not in case of replacement coverage. So we have

Actual Cash Value = Replacement cost - depreciation

= $ 20,000 x 10/20

= $ 10,000

Had it been replacement value it would be = 150000/250000

= 0.75 so 20000*0.75

= $ 15000

Actual Cash Value is $ 10,00.

Nabeel answered 1 year ago

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Question

Assume that a building has a replacement cost of $250,000 but is insured for only $150,000. The roof on the house

Solutions

Expert Solution

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