Question

You have cash value coverage for your personal property on your homeowner's policy. A camera that cost you $300 eight years ago had a life expectancy of 10 years. The camera was stolen, and a new one will cost only $200. How much will the insurance company pay?

A) $60
B) $100
C) $200
D) $300

Answer 1

The insurance company will pay $60 for the stolen camera because it depreciates at $30 per year, so after 8 years, its cash value is $60.

Step-by-step explanation:

In the scenario described where the camera has cash value coverage, the insurance company will compensate for the current actual cash value of the camera, not the cost to replace it with a new one or the original purchase price. Since the camera cost $300 and had a life expectancy of 10 years, it depreciates at $30 per year. After 8 years, the camera would have depreciated by $240 (8 years x $30/year), leaving the actual cash value at $60 ($300 - $240). Therefore, even though the replacement cost of a new camera is $200, under cash value coverage, the insurance company will reimburse the depreciated cash value, which is $60, making option A) the correct answer.