Question

1. Consider your house or your parent’s house is 45 years old
2. 2. Assume that the house has a useful life of 75 years; what is the percentage of depreciation?

3. If it would cost $100,000 to rebuild the house today, what is the Actual Cash Value of the house?

2. A drunk driver ran a red light and smashed into Josie’s car. The cost to repair the car is $8,000. She is unable to collect from the drunk driver. She has collision insurance on her car with a $500 deductible.
   1. Explain how the principle of subrogation would be relevant in this case.

2. Explain how subrogation supports the principle of indemnity.

Answer 1

ANSWER:

Consider your house or your parent’s house is 45 years old

a.

Useful life of house = 75 years (assumed)

% of depreciation = Age of house/ Useful life of house * 100

% of depreciation = 45/75 * 100

% of depreciation= 60%.

b.

cost to rebuild the house = $100,000

Actual cash value of house = Cost to rebuild house today - Depreciation till date

Actual cash value of house = 100,000 - (60%*100,000) = $40,000

Actual cash value of house = $40,000.

(please repost other part of the question.)