Replacement cost minus depreciation is used to calculate

• A. Actual cash value
• B. Market value
• C. Replacement cost
• D. Stated value

Answer: (C)

Depreciation accounts for wear, age, and obsolescence. When you subtract depreciation from the current replacement cost, you’re measuring what the item is actually worth at the time of loss in cash terms—the actual cash value. Replacement cost is the amount to replace the item new today, without subtracting depreciation. Market value is what the item would fetch on the open market, influenced by supply and demand and condition, not by insurance-specific depreciation. Stated value is a pre-agreed amount the policy will pay for a valued item, regardless of current replacement cost or depreciation. So the calculation that yields the amount you’d typically be entitled to after considering wear and tear is actual cash value.