When calculating loss under a BOP, which of the following is used?

When calculating loss under a Businessowners Policy (BOP), the use of replacement value basis is appropriate because it reflects the cost to replace damaged property with new property of similar kind and quality, without deducting for depreciation. This approach is particularly important for businesses that rely on having up-to-date equipment and inventory to maintain operations and meet customer demands.

Using replacement value ensures that the insured is made whole after a loss, as they can cover the cost of acquiring new items that are equivalent to the ones lost. This is in contrast to other methods, such as actual cash value, which considers depreciation and may not provide sufficient funds to replace an asset. Thus, replacing an item based on its current value can potentially leave the business underinsured in the event of a loss, impacting recovery.

In summary, replacement value is the correct choice for calculating losses under a BOP because it aligns with the goal of fully compensating the business for its loss by providing the necessary funds to acquire replacements without accounting for depreciation.