Level 2 chapter 1

Question 1

Actual Cash Value

Answer 1

amount it would cost to replace the property minus depreciation.

Question 2

replacement-cost coverage.

Answer 2

the amount needed to rebuild or replace property as if it were new, without factoring in depreciation. I

Question 3

Even with replacement-cost coverage, the insurer will typically pay the lowest of these three amounts:

Answer 3

The cost to replace the property (Insurance companies often secure replacements at reduced wholesale prices through their vendor relationships.)

The cost to repair the property

The policy’s stated dollar limit — also known as limit of liability — for that specific type of property

Question 4

Functional replacement cost

Answer 4

the amount needed to replace property with a new but potentially less expensive alternative that serves the same essential purpose.

Question 5

fair market value

Answer 5

An item’s fair market value is the amount owners would receive if they were to sell the item in its current condition. In almost all cases, property insurance doesn’t cover an item’s fair market value

Question 6

valued policy

Answer 6

It compensates the consumer with a pre-agreed amount established before any loss occurs.

Question 7

When are valued Policies Are Used

Answer 7

When insured items would be difficult to replace, like antiques or historical artifacts.

When the financial impact of a loss cannot be calculated with certainty, such as the true cost of losing family members to premature death.

Valued policies are extremely common in life insurance but appear less frequently in other insurance sectors.

Question 8

appraisal

Answer 8

a formal, expert opinion about an item’s authenticity, condition, and value.

Question 9

Stated-amount Policies

Answer 9

An insurance policy where you set the item’s value with the insurer.
If there’s a loss, they pay the lesser of:
• The stated amount, or
• The cost to repair/replace.

Question 10

What is a reporting form in insurance?

Answer 10

It’s a type of policy that adjusts coverage based on regular updates from a business about its inventory or assets, instead of using a fixed coverage amount.

Question 11

What is pair or set coverage in property insurance?

Answer 11

It covers the loss in value when one item from a pair or set (like earrings or furniture) is lost or damaged—not the cost of replacing the whole set.

Question 12

What are the 3 levels of property insurance coverage?

Answer 12

Basic coverage – Covers a few perils (e.g., fire, lightning).

Broad coverage – Covers basic perils plus more (like falling objects, water damage).

Special coverage – Covers all risks, except listed exclusions (open-peril).

Question 13

Concurrent causation

Answer 13

when a loss is created by more than one peril at essentially the same time

Question 14

total loss

Answer 14

occurs when property is stolen or damaged beyond usability

Question 15

partial losses

Answer 15

where the property is damaged but can still be repaired or restored

Question 16

What is a coinsurance clause

Answer 16

It’s a rule that requires you to insure property for a certain percentage (usually 80%) of its value to get full payment on partial losses.

Question 17

What happens if you don’t meet the coinsurance requirement?

Answer 17

The insurer will reduce the payout for partial losses based on how underinsured you are.

Question 18

What’s the main goal of a coinsurance clause?

Answer 18

To make sure property is adequately insured.

To help insurers manage small claims more fairly.

Question 19

What is another name for a coinsurance clause?

Answer 19

It’s also called an insurance-to-value clause.