Florida 2-20 General Lines Agent (Property, Casualty, Commercial Lines and Florida Law)Property InsuranceMedium
A client owns a historic home and wants to ensure that if it is damaged, they can rebuild it with authentic materials and craftsmanship, even if the cost exceeds the market value. Which type of valuation method would best meet this client's specific needs under a Property Insurance policy?
- AFunctional Replacement Cost
- BAgreed Value
- CActual Cash Value (ACV)
- DMarket Value
Show answer & explanationAnswer & explanation
Correct answer: B. Agreed Value
Agreed Value is the best option for a historic home where the cost to rebuild with authentic materials might exceed standard replacement cost or market value. This method pre-establishes the value of the property.
Why the other options are wrong
- A. Functional Replacement Cost replaces damaged property with less costly, but functionally equivalent, materials, not authentic ones.
- C. Actual Cash Value subtracts depreciation, which would not allow for rebuilding with authentic materials.
- D. Market Value is what the property would sell for, not necessarily the cost to rebuild it authentically.
Agreed Value
A valuation method where the insurer and insured agree on a specific value for insured property at the time the policy is written. In case of a total loss, this agreed amount is paid.
- Pre-determined value agreed upon by insurer and insured.
- Often used for unique, antique, or hard-to-value property.
- Eliminates disputes over property value at time of loss.
Memory trick: Always Value Genuine Homes with Agreed methods.