Property & Casualty Insurance Exam (National Portion)Property and Casualty Insurance BasicsMedium
An insured owns a valuable antique car. To ensure that in the event of a total loss, they receive a pre-determined amount without dispute over its market value at the time of loss, they agree with the insurer on a specific valuation for the car when the policy is issued. This valuation method is known as:
- AReplacement Cost
- BAgreed Value
- CActual Cash Value (ACV)
- DStated Amount
Show answer & explanationAnswer & explanation
Correct answer: B. Agreed Value
Agreed Value is a valuation method where the insured and insurer agree on the value of the property at the inception of the policy. In the event of a total loss, the agreed amount is paid, eliminating disputes over depreciation or market fluctuations.
Why the other options are wrong
- A. Replacement Cost pays to replace new for old, without depreciation, but still determined at time of loss.
- C. ACV considers depreciation, leading to a lower payout than replacement cost.
- D. Stated Amount is a maximum limit, but the insurer still only pays the lesser of the stated amount or ACV/market value at loss.
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 written. In case of a total loss, this agreed amount is paid, regardless of the actual cash value or market value at the time of loss.
- Value determined before loss
- Eliminates depreciation disputes
- Often used for unique or hard-to-value items
- Requires appraisal or documentation
Memory trick: ACV is OLD, REPLACEMENT is NEW, AGREED is SET, STATED is a CAP.