Property Insurance FundamentalsQuestion 150 of 158
Under most California homeowners policies that provide replacement-cost settlement on the dwelling, the insurer typically pays:
a.Only the deductible amount until repairs are 100% complete
b.ACV first (with depreciation held back) and the remaining depreciation when repairs are actually completed within the time allowed by the policy
c.The full replacement cost up front before any repairs begin
d.Nothing until the insured has built an entirely new home from scratch
Explanation
Replacement cost is conditional on actually repairing or rebuilding. The insurer pays ACV up front and HOLDS BACK the depreciation portion (the 'recoverable depreciation') until the insured submits proof that the work was completed within the time limit, typically 12-24 months in California (extended to up to 36 months for declared disasters under §2051.5).
Law Reference: Cal. Ins. Code §2051.5; standard policy conditionPractice all 158 questions free — no signup required.
Related questions on this topic
- Personal property such as jewelry, firearms, silverware, and currency is typically subject to:
- An 18-year-old composition-shingle roof with a replacement cost of $24,000 is destroyed by hail. Depreciation is calculated at $14,000. If the policy settles this partial loss on an ACTUAL CASH VALUE basis (no replacement-cost endorsement), the insurer will pay (before deductible):
- Which statement BEST distinguishes replacement cost from actual cash value?
- A dwelling with a replacement cost of $500,000 is insured for $300,000 under a policy with an 80% coinsurance clause. A partial loss of $40,000 occurs (ignore the deductible). How much will the insurer pay?
- Coinsurance penalties under a homeowners policy apply to:
- A homeowner deliberately sets fire to her insured house to collect insurance. The mortgagee on the policy is named under a STANDARD (Union) mortgagee clause. What is the most likely outcome?
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