Georgia Property & Casualty Practice Exam

The agreed value method is a specific valuation approach where the insurer and the insured determine and agree upon the value of an item or collection at the time the insurance policy is issued. This method is particularly beneficial for unique or specialized items, such as a porcelain collection, that may not have a straightforward market price. Using this method ensures that if a loss occurs, Robin would receive a predetermined amount that reflects the value of her collection as agreed upon in the policy. This eliminates disputes over the value at the time of loss, providing both the insurer and insured with clarity and security regarding the worth of the insured property. In contrast, methods like actual cash value, market value, or replacement cost may not adequately reflect the specific worth of specialized collections. Actual cash value depreciates the item based on its age and condition; market value relies on the current sales prices in the market; and replacement cost focuses on the cost to replace the item at today's prices, which may not consider uniqueness or historical significance as effectively as the agreed value approach.