A homeowner's five-year-old roof with a 20-year expected life is destroyed by a covered windstorm. Replacement cost is $20,000. Using the depreciation method for Actual Cash Value, what is the ACV settlement before any deductible?

Why this is the answer

Actual Cash Value under the depreciation method equals Replacement Cost minus accumulated depreciation. The roof is 5/20 = 25% through its useful life, so depreciation is 25% × $20,000 = $5,000. ACV = $20,000 − $5,000 = $15,000. Some jurisdictions instead use Fair Market Value or the Broad Evidence Rule, which considers multiple factors including market, RC, depreciation, and obsolescence.