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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?
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?
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?
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?
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?
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.