Los Angeles Claims Adjuster Property and Causality Practice Exam

On what basis are losses to dwelling and other structures paid, as long as the insured carries sufficient insurance?

1. Actual cash value

2. Replacement cost basis

3. Flat rate

4. Aggregate limit

The correct answer is: Replacement cost basis

Losses to dwelling and other structures are paid on a replacement cost basis, provided the insured carries sufficient insurance coverage. This means that in the event of a loss, the insurer will reimburse the insured for the cost of replacing the damaged property with materials of like kind and quality, without deducting for depreciation. This method provides the insured with a financial benefit because it allows them to restore or replace their property to its original condition without suffering a financial loss due to depreciation. It's important for policyholders to maintain adequate coverage to ensure that they can fully benefit from this provision. In contrast, the actual cash value method takes into account depreciation, which can result in lower compensation and might not cover the full cost of replacement. Other options, like a flat rate or aggregate limit, do not specifically relate to the basis for settling losses and thus are not applicable in this context.