Question

The insured’s house is located one mile from the county’s new landfill and across the road from the entrance of a rock quarry. It would cost $150,000 to rebuild the house if something happened to it, but when the insured tried to sell it, the best offer he received was $80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property?

Answer 1

Answer:

Market Value

Explanation:

Market value refers to the amount that an asset would would bring at the marketplace. It is the amount of money in which a seller receives from selling an asset. It is defined as the estimated price at which an asset should exchange on day of valuation between a willing buyer and seller. In this case, the house was insured using market value of the house and not the actual cost needed in rebuilding the house if something happens to the house.