1-J Valuation, Deductibles, and Coinsurance

Question 1

_______________- the process of estimating what an item is worth

Answer 1

Valuation

Question 2

ACV (Actual Cash Value)- valuation method that takes into account an item’s _____________.

Answer 2

Depreciation

Question 3

ACV is the same as fair ____________ value and _____________ value.

Answer 3

Market; Depreciated

Question 4

ACV offers _____________ premiums for less coverage.

Answer 4

Lower

Question 5

Formula for ACV: _____________ cost minus Depreciation

Answer 5

Replacement

Question 6

_____________________ cost- method of valuation based on the cost of replacing an item at current market prices, regardless of depreciation.

Answer 6

Replacement

Question 7

___________________- an item’s estimated loss of value due to wear, tear, and age

Answer 7

Depreciation

Question 8

Annual Depreciation- replacement cost divided by the item’s useful ________.

Answer 8

Life

Question 9

Accumulated Depreciation- item’s annual depreciation multiplied by it’s _________.

Answer 9

Age

Question 10

Broad ________________ Rule- used in some states. ACV does not simply come down to RC minus depreciation. Takes into consideration any evidence available to determine value.

Answer 10

Evidence

Question 11

RC (Replacement Cost)- no depreciation, based on replacement cost at time of loss, __________ premiums.

Answer 11

Higher

Question 12

Reproduction Cost- cost to produce an exact ___________ of damaged property in the same manner and materials in which it was originally produced. Not the same as replacement cost.

Answer 12

Replica

Question 13

RC and the Principle of Indemnity: insured cannot _________ from a loss. Insurer often waits to pay full amount until insured submits proof of replacement.

Answer 13

Profit

Question 14

FRC (Functional Replacement Cost)- pays to replace an _____________ item with a functionally equivalent item- not an identical item; level of coverage falls between RC and ACV.

Answer 14

Obsolete or outdated

Question 15

Obsolescence- when something is no longer ________ or __________, despite being in good working order; usually result of newer, improved alternative; causes rapid depreciation. EX. walls made of lath and plaster vs drywall, VCRs, and portable CD players.

Answer 15

used; wanted

Question 16

Valued Policy a.k.a. Agreed Value or Guaranteed Value- determined prior to issuance of policy; avoids confusion of assessing appreciation/depreciation. What type of items are these policies commonly used with?

Answer 16

Antiques or Fine arts

Question 17

Stated Amount or Stated Value- property value is stated by insured when ___________ for insurance. When loss occurs, policy pays up to the stated amount or ACV, whichever is less.

Answer 17

applying

Question 18

Stated value policies offer lower premiums and are a good choice if insured can’t ________to insure an item for its full value.

Answer 18

afford

Question 19

______________ Loss- when insured property is only partly damaged, and repair costs fall within the policy limit.

Answer 19

Partial

Question 20

_______________ Loss- when insured property is damaged so badly that it is not worth repairing.

Answer 20

Total

Question 21

What are the two types of total loss?

Answer 21

1. Actual total loss
2. Constructive total loss

Question 22

Actual total loss- when property is _______________destroyed and unrepairable.

Answer 22

completely

Question 23

Constructive total loss- when the cost of repairing damaged property is _____________ than the property’s current value.

Answer 23

higher

Question 24

_____________________-amount the policyholder must pay out pocket before the insurer will pay for losses.

Answer 24

Deductible

Question 25

There are ___ types of deductibles

Answer 25

3
1. Fixed
2. Percentage
3. Franchise

Question 26

Franchise deductible- policy kicks in only after loss exceeds predetermined amount. If losses are below the deductible, insurer pays ____________. If losses are above deductible, the insurer pays ________% of the damage.

Answer 26

nothing; 100%

Question 27

Coinsurance- encourages insured to purchase an adequate amount of coverage, typically at least _____% of a property’s value.

Answer 27

80%

Question 28

A home is considered ________________ when is insured for less than 80% of its value.

Answer 28

underinsured

Question 29

Coinsurance penalty- if property is underinsured, insurer will only cover a percentage of ___________ losses.

Answer 29

partial