Property Insurance FundamentalsQuestion 213 of 474
Functional replacement cost settles a building loss by:
a.Repairing with modern materials that do the same job
b.Paying the cost to duplicate the original materials
c.Deducting depreciation from the builder's estimate
d.Paying what a willing buyer would give for the house
Explanation
Functional replacement cost pays to rebuild with modern, commonly available materials that do the same job, drywall in place of plaster for example, rather than duplicating obsolete construction. The answer describing what a buyer would pay is market value, a different measure. Deducting depreciation describes actual cash value, and duplicating the original materials is full replacement cost.
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Related questions on this topic
- On a standard unendorsed homeowners form, how do the loss settlement bases for the dwelling and for personal property differ?
- Under a replacement cost settlement, why does the insurer first pay only the actual cash value of the damage?
- A covered fire causes damage with a replacement cost of $32,000; the actual cash value of that damage is $23,000 and the deductible is $1,000. What does the insurer pay before any repairs are made?
- Insurable value for a dwelling differs from the home's market value chiefly because insurable value:
- A house sold recently for $460,000. A builder puts the cost to rebuild the structure at $310,000, the lot alone is worth $150,000, and the mortgage balance is $370,000. The dwelling limit should be set near:
- The coinsurance formula settles a partial loss by multiplying the loss by:
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