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Insurance · Loss Valuation and Settlement

An insured has replacement cost coverage. A 5-year-old roof is destroyed. A new roof costs $15,000. What is the Actual Cash Value (ACV)?

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Correct answer

Cannot be determined without a depreciation schedule

  1. A $10,000
  2. B Cannot be determined without a depreciation schedule
  3. C $15,000
  4. D $7,500

Why this is the answer

ACV requires applying depreciation to the replacement cost. To calculate ACV, you need: replacement cost AND the depreciation rate for the roof's age and material. A 5-year-old asphalt shingle roof might be 25% depreciated (5 years of a 20-year life = 25%), giving ACV of $15,000 × 0.75 = $11,250. But without the depreciation schedule and remaining useful life data, you cannot calculate this — hence 'cannot be determined without a depreciation schedule' is the most accurate answer on an exam testing conceptual understanding.
Source: Adjuster Exam, ACV Calculation

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About this topic: Loss Valuation and Settlement

Three approaches: sales comparison (best for residential), cost (best for unique buildings), and income (best for investment property). Skilled appraisers reconcile all three. This is one of 10 Insurance Adjuster questions on loss valuation and settlement, each with a full explanation on a single study page.

New to this exam? Our Insurance exam guide explains the format, scoring, and how to prepare.

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