Question

Personal line property insurance may be written on a replacement cost basis which is:

a) Same as actual cash value replacement.
b) Replacement or repair of the damaged property as it cost at the time of the loss with property of like kind and quality, with a deduction for depreciation.
c) Same as B above, without deduction for depreciation.
d) Is not an endorsement.

Answer 1

Personal line property insurance on a replacement cost basis means repairing or replacing property without a deduction for depreciation, which ensures that the policyholder can restore their property after a loss. It is distinct from actual cash value replacement and ties into broader insurance principles such as coinsurance and the fundamental law of insurance.

Step-by-step explanation:

Personal line property insurance may be written on a replacement cost basis, which is defined as the replacement or repair of the damaged property with materials of like kind and quality at current prices, without deduction for depreciation. This is different from actual cash value replacement, which does include a deduction for depreciation. The concept of replacement cost basis ensures that the policyholder can restore their property to a pre-loss condition.

Coinsurance is a related concept where the policyholder pays a percentage of a loss, and the insurance company pays the remaining cost. It's important to understand that while a cash-value life insurance policy does have a death benefit and a cash value component, the replacement cost in the context of property insurance is specifically related to repairing or replacing property, not life insurance benefits.

The fundamental law of insurance dictates that over time, an individual's insurance payments must cover claims, the costs of running the insurance company, and allow for the company's profits. This economic principle applies across various types of insurance policies, including those with replacement cost coverage.