What concept refers to less than full compensation for a loss, taking into account depreciation?

What concept refers to less than full compensation for a loss, taking into account depreciation?

• A. Replacement value
• B. Actual Cash Value (ACV)
• C. Market value
• D. Indemnity

Answer: (B)

The concept that refers to less than full compensation for a loss, taking into account depreciation, is Actual Cash Value (ACV). ACV is calculated by taking the replacement cost of an asset and subtracting any depreciation that has occurred since the asset was acquired. This means that when a claim is settled based on ACV, the policyholder receives compensation that reflects the current value of the asset rather than what it cost to replace it. For example, if you had a 5-year-old vehicle that was damaged in an accident, its ACV would be the amount it could fetch on the used market or the amount it would cost to replace it minus depreciation, rather than the full cost of a brand-new vehicle. This concept ensures that insurance payouts align more closely with the actual value of the item at the time of the loss. The other concepts outlined do not accurately reflect the definition of compensation accounting for depreciation. Replacement value refers to what it would cost to replace an asset with a new one of similar kind and quality, which does not factor in depreciation. Market value typically relates to the price an item could sell for in the open market and may not consider depreciation in the same way as ACV. Indemnity refers to the principle of restoring

The concept that refers to less than full compensation for a loss, taking into account depreciation, is Actual Cash Value (ACV). ACV is calculated by taking the replacement cost of an asset and subtracting any depreciation that has occurred since the asset was acquired. This means that when a claim is settled based on ACV, the policyholder receives compensation that reflects the current value of the asset rather than what it cost to replace it.

For example, if you had a 5-year-old vehicle that was damaged in an accident, its ACV would be the amount it could fetch on the used market or the amount it would cost to replace it minus depreciation, rather than the full cost of a brand-new vehicle. This concept ensures that insurance payouts align more closely with the actual value of the item at the time of the loss.

The other concepts outlined do not accurately reflect the definition of compensation accounting for depreciation. Replacement value refers to what it would cost to replace an asset with a new one of similar kind and quality, which does not factor in depreciation. Market value typically relates to the price an item could sell for in the open market and may not consider depreciation in the same way as ACV. Indemnity refers to the principle of restoring