Question

Adjustments under commercial property coverages are initially valued how?

(A) Actual Cash Value

(B) Pro-rated Replacement Cost

(C) Replacement Cost Value

(D) Full Retail Repair Cost

Answer 1

Commercial property insurance typically values policy adjustments initially at Actual Cash Value (ACV), which deducts depreciation from the replacement cost. A Replacement Cost Value (RCV) policy, which does not consider depreciation, requires a higher premium.

Step-by-step explanation:

The question pertains to the method of valuation used in commercial property insurance when a loss occurs and an adjustment needs to be made. Typically, commercial property coverages initially value a loss at Actual Cash Value (ACV). ACV is a method that accounts for depreciation and is calculated by subtracting depreciation from the replacement cost of the item. If a policyholder prefers to be reimbursed for the item at its full, new value, they would need to have a Replacement Cost Value (RCV) policy, which does not account for depreciation and would result in a higher premium.