valuation, deductibles, and coinsurance Flashcards
distinguish different types of methods of valuation define deductibles and how they apply to indemnificaiton explain how coinsurance protects the insurer
valuation
figuring out how much an item is worth
methods of valuation
actual cash value, replacement cost, stated amount, agreed value
Actual cash value
a valuation method that takes into account depreciation
acv formula
replacement cost - depreciation
replacement cost
method of valuation based on the cost of replacing an item at current market prices
depreciation
items estimated value due to wear, tear, and age
annual depreciation
replacement cost divided by items useful life
accumulated depreciation
the items annual depreciation multiplied by its age
Broad evidence rule
takes into consideration any evidence available to determine value
obsolesce
when something is no longer used or wanted despite still being able to work most likely cuz of new and improved alternatives
valued policy valuation method
assigns an appraised value determined at begging of insurance
States amount
property value is stated by the insurer when applying for insurance
partial loss
partly damaged and falls within policy limit coverage
total loss
when property Is damaged so badly its not worth repairing
2 types of total losses
actual total loss and constructive total loss
actual total loss
when property is completely destroyed and unrepairable
constructive total loss
when the cost of repairing damaged property is higher than the property’s current value
insurer could keep damaged value or if u want to keep it they will subtract what u could possibly get from selling parts
deductible
predetermined amount that the policyholder must pay in order to activate the financial benefits of an insurance policy
three types of deductibles
fixed, percentage, and franchise
fixed deductible
a specific set amount
Percentage deductible
insured pays a percentage of the insureds risked value
coinsurance
encourages insured to purchase 80% or more of a property value
franchise deductible
if losses are less than deducible insured pays it if its more the insurer pays all of it
underinsured
when insured property is insured for lass than 80% of value
coinsurance penalty
if property is underinsured the insurer will only cover partial percentage loss. insurer determines if they will penalize or not
coinsurance penalty formula
“had” coverage/“should” coverage x loss