California Property & Casualty Broker-AgentProperty InsuranceEasy
A client owns a commercial building and wants to ensure that the policy will pay for the cost to repair or replace damaged property with new property of like kind and quality, without any deduction for depreciation. Which valuation method should be specified in their Commercial Property policy?
- AReplacement Cost (RC)
- BStated Amount
- CActual Cash Value (ACV)
- DFunctional Replacement Cost
Show answer & explanationAnswer & explanation
Correct answer: A. Replacement Cost (RC)
Replacement Cost (RC) valuation pays for the cost to repair or replace damaged property with new property of like kind and quality, without any deduction for depreciation. This is precisely what the client is requesting.
Why the other options are wrong
- B. Stated Amount pays the lesser of the stated amount or the actual cash value.
- C. Actual Cash Value (ACV) pays replacement cost less depreciation.
- D. Functional Replacement Cost replaces damaged property with less costly, but functionally equivalent, materials.
Replacement Cost (RC)
A method of valuation that pays for the cost to repair or replace damaged property with new property of like kind and quality, without deduction for depreciation.
- No depreciation applied.
- Provides funds for new property.
- Often requires insuring to a high percentage of the property's value.
Memory trick: Always Consider Real Value For Property.