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Insurance · Loss Valuation and Settlement

When valuing a property loss on an actual cash value (ACV) basis, how does an adjuster generally calculate it?

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

Replacement cost minus depreciation

  1. A Replacement cost plus depreciation
  2. B The original purchase price
  3. C Twice the repair cost
  4. D Replacement cost minus depreciation

Why this is the answer

On an actual cash value (ACV) basis, an adjuster generally values a property loss as the replacement cost of the damaged item minus depreciation (the reduction in value due to age, wear, and obsolescence). For example, a ten-year-old roof damaged in a storm would be valued at what a new roof costs, less depreciation for its age and condition. This contrasts with replacement cost value, which does not deduct depreciation (subject to policy terms). Determining appropriate depreciation is a key part of accurate ACV loss valuation. Understanding the ACV formula — replacement cost minus depreciation — is essential valuation content for the adjuster exam.
Source: NAIC Adjuster, ACV Valuation

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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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