Question

Under a cash value policy, the loss of a $600 item with an estimated life of five years that was purchased three years ago and has a replacement cost of $900 would result in a payment from the insurance company of

A) $600
B) $900
C) $240
D) $360

Answer 1

Under a cash value policy, the insurance company would likely pay $360 as the payment for the loss of the $600 item.

Step-by-step explanation:

Under a cash value policy, the insurance company would calculate the payment based on the current cash value of the item. In this case, the item was purchased three years ago and has an estimated life of five years. Assuming that the cash value of the item depreciates evenly over its estimated life, the current cash value would be calculated as follows:

Depreciation per year: $600 / 5 years = $120 per year

Depreciated value after three years: $120 per year x 3 years = $360

Therefore, the insurance company would likely pay $360 as the payment for the loss of the $600 item.