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Insurance to value
- insurance written for an amount approximating the full value of the asset(s) insured
- beneficial to both insurer and insured
- insurer: premium is adequate to cover losses; simplifies underwriting
- insured: sufficient funds available in event of loss
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How insurers encourage insurance to value
- insurance-to-value provisions: reduces the amount payable for both partial and total losses if the insured has not purchased adequate limits of coverage
- coinsurance clause: requires the insured to carry insurance equal to at least a specified percentage of the insured's property's value
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Liability vs insurance to value
- not applicable since there's no limit to liability
- use insurance rates by layers instead
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Homeowners and Businessowners policies
- insurance-to-value provision: amount payable will never be less than ACV, subject to policy limit
- if limit correct: pay replacement cost as a reward
- otherwise: pay cash value as a penalty
- can use a combination (times did/should)
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Insurance-to-value problems
- underinsurance penalties: not a concern for insureds maintaining limits that meet or exceed coinsurance requirements
- difficulty in maintaining limits: time value of money, initially an informed guess, hard to evaluate until need replacement / repair
- property value recommendations: can hire qualified appraiser (reappraise every few year), review periodically, consider coverage options
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Coverage options to solve insurance-to-value problems
- agreed value: optional value that suspends the coinsurance condition if the insured carries the amount of insurance agreed to by insurer and insured
- inflation guard protection: increases the applicable limit by specified percentage over policy period
- peak season endorsement: covers the fluctuating values of business personal property by providing differing amounts of insurance for certain time periods during the policy period
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