Texas General Lines — Property and CasualtyProperty and Casualty Insurance BasicsMedium
A business owner has a commercial property policy covering their inventory. The policy states that if the damaged property can be repaired or replaced, the insurer will pay the lesser of the cost to repair or replace the property, or the actual cash value. This describes a common element of:
- ASubrogation
- BLoss Settlement Options
- CSalvage
- DAppraisal
Show answer & explanationAnswer & explanation
Correct answer: B. Loss Settlement Options
The description details how the insurer will determine the amount of payment for a covered loss, specifically outlining the methods and limitations for valuing and settling the claim. These are known as Loss Settlement Options.
Why the other options are wrong
- A. Subrogation is the insurer's right to pursue a third party responsible for a loss.
- C. Salvage refers to the insurer taking possession of damaged property after paying a claim.
- D. Appraisal is a method to resolve disputes over the amount of loss, not the general payment terms.
Loss Settlement Options
Policy provisions that outline the methods and criteria an insurer will use to determine the amount of payment for a covered loss.
- Common options include Actual Cash Value, Replacement Cost, Repair Cost.
- Often specify the 'lesser of' clauses.
- Determines the financial payout to the insured.
Memory trick: Loss Settlement Offers: How much, how fast, how fair.