Georgia Property & Casualty Practice Exam

Which of the following is included in the valuation of personal property under an insurance policy?

1. Replacement cost

2. Actual cash value

3. Agreed value

4. All of the above

The correct answer is: Agreed value

The correct choice is that the valuation of personal property under an insurance policy can utilize various methods, which include replacement cost, actual cash value, and agreed value. Each of these methods serves a specific purpose regarding how claims are assessed and settled. Replacement cost refers to the amount it would take to replace the damaged property with new items of like kind and quality without deduction for depreciation. This approach is beneficial for policyholders who want to ensure they can fully restore their possessions without financial loss due to age or wear and tear. Actual cash value, on the other hand, incorporates depreciation. It represents the cost to replace the property minus any depreciation, which reflects the decrease in value due to age, wear, and condition. This method may result in a lower payout because it factors in the reduction in worth over time, making it attractive to insurers for managing their liabilities. Agreed value is a predetermined amount agreed upon by both the policyholder and the insurer at the inception of the policy. This method provides certainty for both parties regarding the payout in the event of a total loss, as it eliminates disputes over valuation at the time of the claim. Since all three methods are common forms of valuation that can be incorporated into personal property insurance policies, saying one specific method