Personal Finance 1st Edition by Jack R. Kapoor

Exercise 11

Computing Actual Cash Value Coverage. What amount would a person with actual cash value (ACV) coverage receive for two– year–old furniture destroyed by a fire? The furniture would cost $1,000 to replace today and had an estimated life of five years. (Obj. 3)

Step 1 of 2

Actual cash value is a claim settlement method in which the insured receives payment based on the current replacement cost of a damaged or lost item, less depreciation.

Actual cash value for 2 year old furniture will be determined by subtracting the value of depreciation of the furniture from the furniture cost.

Depreciation is calculated by furniture cost divided by the estimated life and multiplying with the age of the furniture.