Property & Casualty Insurance Exam (National Portion)Property and Casualty Insurance BasicsMedium
An insured owns a valuable antique sculpture. To ensure that in the event of a total loss, the insurer pays a predetermined amount that both parties agreed upon at the time the policy was issued, the insured should request what type of valuation?
- AAgreed Value
- BMarket Value
- CReplacement Cost (RC)
- DActual Cash Value (ACV)
Show answer & explanationAnswer & explanation
Correct answer: A. Agreed Value
Agreed Value is a valuation method where the insured and the insurer agree on the value of the property at the time the policy is written. In the event of a total loss, this predetermined amount is paid, avoiding disputes over depreciation or market fluctuations for unique items.
Why the other options are wrong
- B. Market Value can fluctuate and be subjective for unique items, potentially leading to disputes.
- C. RC would be difficult to determine for an antique with no direct replacement.
- D. ACV deducts depreciation, which may not be suitable for unique antiques.
Agreed Value
A property valuation method where the insurer and insured agree on the value of the property at the time the policy is issued, and this amount is paid in the event of a total loss.
- Often used for unique items like art, antiques, or collectibles.
- Eliminates depreciation or market value disputes at time of loss.
- Requires appraisal or documentation at policy inception.
Memory trick: Value Methods: How much 'Value' will they 'Methodically' pay?