Question 1

What valuation method pays the cost to repair or replace damaged property with new materials of like kind and quality, without deducting for depreciation?

Accepted Answer

Replacement Cost Value (RCV). It pays what it costs to replace the property new, making the insured whole without a depreciation deduction.

Question 2

How is Actual Cash Value (ACV) typically calculated?

Accepted Answer

ACV equals replacement cost minus depreciation. It accounts for the age, wear, and condition of the property at the time of loss.

Question 3

Under an Agreed Value clause, how is a covered loss settled?

Accepted Answer

The insurer and insured agree on the property's value at policy inception, and that agreed amount is paid in the event of a total loss, with no coinsurance penalty applied.

Question 4

What is 'functional replacement cost' as a valuation method?

Accepted Answer

Functional replacement cost pays to replace damaged property with less expensive but functionally equivalent modern materials, commonly used for older or obsolete structures.

Question 5

Under a standard Homeowners policy, what is the minimum replacement cost coverage percentage required to receive full replacement cost (no depreciation deducted) on a dwelling loss?

Accepted Answer

The dwelling must be insured for at least 80% of its replacement cost at the time of loss to receive full replacement cost settlement without a coinsurance penalty.

Property Coverage – P&C License Exam Flashcards

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