West Virginia Adjusters Practice Exam

According to the Valued Policy Law, what should an insurer pay if a building is completely destroyed by fire?

1. Actual cash value of the property

2. Full amount listed in the policy

3. Half the policy amount

4. Replacement cost minus depreciation

The correct answer is: Actual cash value of the property

The Valued Policy Law mandates that, in the event of a total loss of a building, the insurer is obligated to pay the full amount specified in the insurance policy, regardless of the actual cash value at the time of loss. This means that the correct approach under the Valued Policy Law is to provide the policyholder with the sum agreed upon at the outset of the policy, which reflects the value of the property as insured. While actual cash value might apply in other circumstances, particularly for partial losses or where Valued Policy Law doesn't apply, a total destruction, such as a fire that completely obliterates the structure, specifically invokes the full insured amount. This legal framework is designed to protect policyholders by ensuring they receive the promised benefits when they suffer a total loss, thus promoting financial recovery post-disaster.