Texas General Lines — Property and CasualtyProperty and Casualty Insurance BasicsMedium
An insured has a valuable antique collection. To ensure that in the event of a total loss, they receive a payout equal to its established worth, they arrange with their insurer to set a specific value for the collection at the time the policy is issued. This valuation method is known as a(n):
- AMarket Value
- BReplacement Cost
- CActual Cash Value
- DAgreed Value
Show answer & explanationAnswer & explanation
Correct answer: D. Agreed Value
Agreed Value is a valuation method where the insurer and insured agree on a specific value for property at the time the policy is written. In case of a total loss, this agreed-upon amount is paid, eliminating disputes over actual worth.
Why the other options are wrong
- A. Market Value fluctuates and could lead to disputes, whereas Agreed Value is fixed upfront.
- B. Replacement Cost pays for new property, which is irrelevant for unique antiques.
- C. Actual Cash Value (ACV) subtracts depreciation, which isn't suitable for antiques whose value often appreciates.
Agreed Value
A method of property valuation where the insurer and insured agree on a specific value for the insured property at the time the policy is issued. In the event of a total loss, this predetermined amount is paid.
- Value set at policy inception
- Eliminates depreciation disputes
- Often used for unique or difficult-to-value items (e.g., antiques, fine art)
Memory trick: Agreed Value: We agree on the value beforehand.