Settlement method that pays replacement cost minus depreciation is which concept?

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Study for the Other Than Life (OTL) Agent's Exam A. Enhance your knowledge with questions and detailed explanations. Prepare confidently for your insurance exam!

Multiple Choice

Settlement method that pays replacement cost minus depreciation is which concept?

Explanation:
Actual Cash Value is the settlement basis that subtracts depreciation from replacement cost. It reflects the item’s current worth after wear and aging, not what it would cost to replace new. For example, if something could be replaced for $50,000 but has depreciated by $15,000, the payout under Actual Cash Value would be $35,000. This differs from Replacement Cost, which would pay the full $50,000 (subject to policy limits and coinsurance). The other terms describe different concepts or endorsements, not the method of calculating the payout as replacement cost minus depreciation.

Actual Cash Value is the settlement basis that subtracts depreciation from replacement cost. It reflects the item’s current worth after wear and aging, not what it would cost to replace new. For example, if something could be replaced for $50,000 but has depreciated by $15,000, the payout under Actual Cash Value would be $35,000. This differs from Replacement Cost, which would pay the full $50,000 (subject to policy limits and coinsurance). The other terms describe different concepts or endorsements, not the method of calculating the payout as replacement cost minus depreciation.

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