Valuation, Deductibles And Coinsurance

Question 1

Accumulated Depreciation

Answer 1

The total decrease in an items value over a period of time.
Formula: (Annual Depreciation X number of years used).
Subtract this number from the item’s replacement cost to get its actual cash value. (ACV)

Question 2

Actual Cash Value (ACV)

Answer 2

A valuation method used by insurers to reflect an item’s current market value right before being damaged or destroyed. Formula: (replacement cost - accumulated depreciation)

Question 3

Agreed Value

Answer 3

A valued policy in which the insurer and the insured agree to a specific value for an item, appraised at the inception of the policy. Often used to insure items whose value is difficult to quantify, such as antiques or fine art. Also called a guaranteed value policy.

Question 4

Annual Depreciation

Answer 4

An Item’s replacement cost divided by the number of years in its expect lifespan.

Question 5

Coinsurance

Answer 5

A property insurance provision that requires the policyholder to carry adequate coverage (typically at least 80% of the property’s value). If a property does not meet this requirement (I.e. if it is underinsured), the insurer applies a penalty on claims for partial losses. The penalty requires the policyholder to pay a percentage of the claim, depending on how underinsured the property is. To calculate: divide the actual coverages by the Coinsurance requirement and then multiply that by the loss. In health insurance, Coinsurance refers to the portion of a covered claim that the insured is responsible for paying out-of-pocket, after the deductible has been paid.

Question 6

Coinsurance Penalty Equation

Answer 6

$ “Had” (actual coverage) divided by $ “Should” (Coinsurance requirement) Multiplied by $ Partial Loss.

Question 7

Deductible

Answer 7

The Amount the policyholder must pay out-of-pocket before the insurance company will pay the remaining costs. There are three types: fixed, franchise, and percentage.

Question 8

Fixed Deductible

Answer 8

One specific, predetermined amount that a policyholder must pay out-of-pocket before his policy coverage kicks in.

Question 9

Franchise Deductible

Answer 9

The policyholder only pays if the total damages come out to less than his deductible. If the cost damages equals or exceeds the deductible, the insures pays the full amount and the policyholder pays nothing.

Question 10

Percentage Deductible

Answer 10

A deductible that is calculated as a percentage of the value of the insured risk.

Question 11

Depreciation

Answer 11

A decline in value of property caused by wear loss of usefulness, usually measured by a specific formula.

Question 12

Market Value

Answer 12

The price something will sell in the open market, or “fair market value.”

Question 13

Replacement Cost (RC)

Answer 13

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

Question 14

Stated Value

Answer 14

A valuation method in which the insured simply assigns the risk a value at the outset of the policy. The insurer will pay this amount in case of a total covered loss

Question 15

Underinsured

Answer 15

Not sufficiently insured against particular losses. For example, any home insured at less than 80% of its value is considered underinsured.

Question 16

Valuation

Answer 16

The process of estimating what an item is worth. Methods of valuation include “Actual Cash Value” “Replacement Cost” and “Agreed Value”

Question 17

Value

Answer 17

The estimated or appraised worth of an item, used to determine the replacement cost or indemnification amount.

Question 18

Valued Policy

Answer 18

A policy in which the insurer and the insured agree to a specific value prior to the start of the policy. If the item is lost or destroyed, the insurer pays the amount agreed upon.