An insured's roof cost $4,000 when installed 5 years ago and is now damaged. If the roof depreciates $200 per year and the policy is written on the actual cash value, how much will the policy pay for a new roof costing $6,000?

To determine how much the policy will pay for a new roof priced at $6,000 under an actual cash value (ACV) policy, it's essential to calculate the depreciation of the existing roof.

The roof was originally installed at a cost of $4,000 and has been in place for 5 years. Given the depreciation rate of $200 per year, the total depreciation over that period would be calculated as follows:

5 years x $200 per year = $1,000 in total depreciation.

To find the actual cash value, which is the current worth of the roof after accounting for its depreciation, you subtract the total depreciation from the original cost:

$4,000 (original cost) - $1,000 (depreciation) = $3,000.

However, since the policy pays the lesser of the actual cash value of the damaged item or the cost to replace it, we need to consider the cost to replace the roof as well. The cost of a new roof is $6,000.

Thus, the insurer will pay the actual cash value of the damaged roof, which amounts to $3,000, for the reimbursement related to the claim. However, the policy's coverage may also provide an