Question

Identify the three amounts to be considered when calculating the amount of payment as outlined in the Indemnity agreement, and of the three amounts which one is payable?

a) Actual cash value, replacement cost, deductible; Replacement cost
b) Depreciated value, deductible, coinsurance; Depreciated value
c) Replacement cost, coinsurance, actual cash value; Actual cash value
d) Deductible, actual cash value, replacement cost; Actual cash value

Answer 1

The three amounts considered in an Indemnity agreement for calculating payment are a) the actual cash value, replacement cost, and deductible, with the actual cash value being the payable amount. This value reflects the item's current market value, accounting for depreciation.

Step-by-step explanation:

When calculating the payment amount in an Indemnity agreement, three specific amounts need to be considered: the a) actual cash value, the replacement cost, and the deductible.

Among these, the actual cash value is typically the amount payable under the indemnity agreement. Here is how each component contributes to the calculation:

• The actual cash value is the value of the item at the time of loss or damage, considering depreciation.
• The replacement cost is what it would cost to replace the lost or damaged item with a new one.
• The deductible is the out-of-pocket amount the policyholder must pay before the insurance company pays for the rest of the loss.

The actual cash value is used as the basis for payment since it reflects the item's current market value, taking into account depreciation, which aligns the indemnity principle that a policyholder should not profit from an insurance claim.