03.02. Insurance to Value

  1. 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
  2. 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
  3. Liability vs insurance to value
    • not applicable since there's no limit to liability
    • use insurance rates by layers instead
  4. 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)
  5. 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
  6. 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
Card Set
03.02. Insurance to Value
Insurance to Value