Final answer:
If the insured carries a DP-2 Dwelling form and insures the dwelling for 80% of its replacement cost value, he will be paid the actual cash value of the damages incurred. In this case, if the insured's 30-year-old roof sustains $10,000 in damages, he will be paid $10,000 after adjusting for depreciation.
Step-by-step explanation:
If the insured carries a DP-2 Dwelling form and insures the dwelling for 80% of its replacement cost value, he will be paid the actual cash value of the damages incurred. Actual cash value is determined by subtracting depreciation from the replacement cost value. In this case, since the roof is 30 years old, it will have depreciated significantly. Let's assume the replacement cost of the roof is $20,000. Since the insured only carries 80% of the replacement cost, the policy will cover a maximum of $16,000.
If the roof sustains $10,000 in damages, the insured will be paid the actual cash value of the damages. To calculate the actual cash value, we need to determine the depreciation of the roof. Let's say the roof has a lifespan of 50 years according to the insurance company. The depreciation is calculated by dividing the age of the roof by its expected lifespan: 30 years / 50 years = 0.6 or 60%.
To get the actual cash value, we subtract the depreciation from the replacement cost: $16,000 - ($10,000 * 0.6) = $16,000 - $6,000 = $10,000.