Other Than Life (OTL) Agent’s Exam A Practice

What describes replacement cost basis for personal line property insurance?

Same as actual cash value replacement. Replacement or repair of the damaged property as it cost at the time of the loss with property of like kind and quality, with a deduction for depreciation. Same as B above, without deduction for depreciation. Is not an endorsement.

Correct Answer:

Same as B above, without deduction for depreciation.

Explanation:

Replacement cost basis means you reimburse the cost to replace the damaged property with a new item of like kind and quality at current prices, with no deduction for depreciation. This reflects what it would cost to replace today, rather than taking wear-and-tear into account. The option that says no depreciation is the correct match for replacement cost, while one that includes a deduction for depreciation describes actual cash value, and the statement about an endorsement isn’t relevant to the concept.

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