Hawaii Insurance License Practice Exam

What is the term for the value of insured property after accounting for depreciation?

1. Market Value

2. Replacement Cost

3. Actual Cash Value

4. Cost Basis

The correct answer is: Actual Cash Value

The term that refers to the value of insured property after accounting for depreciation is Actual Cash Value. This concept represents the market value of the property at the time of loss, taking into consideration any depreciation that may have occurred since the property's purchase or last appraisal. Actual Cash Value is often calculated using the formula: Actual Cash Value = Replacement Cost - Depreciation Understanding Actual Cash Value is vital in insurance because it affects the amount an insured will receive in the event of a claim. This value reflects a more realistic picture of what the property is worth at the point of loss, rather than just the original purchase price or the cost to replace it with new items. The other terms in the choices have different meanings: Market Value reflects the price that buyers are willing to pay for the property in the open market; Replacement Cost is the amount it would take to replace the property with a similar one at current prices without factoring in depreciation; and Cost Basis is the original value of an asset, accounting for any adjustments, but does not represent the current value after depreciation.