Arkansas Insurance Adjuster Practice Exam

Under replacement cost valuation, which statement is correct?

1. Replacement cost valuations provide cheaper premiums than actual cash value policies

2. Replacement cost valuations take into account the depreciated value

3. An actual cash value policy pays out more than a replacement cost policy

4. Insurers may require items to be replaced before making full reparations

The correct answer is: Insurers may require items to be replaced before making full reparations

Replacement cost valuations are used to determine the value of an item for insurance purposes, and in the event of a loss, the insurer will reimburse the policyholder for the cost of replacing the item with a new item of similar or equal value. This means that option D is the correct statement because insurers may require the items to be replaced before making full repairs. Options A, B, and C are incorrect because replacement cost valuations do not necessarily result in cheaper premiums, they do not take into account depreciation, and they do not necessarily pay out more than an actual cash value policy. Additionally, option C is incorrect because replacement cost valuations are specifically meant to cover the cost of replacing the item, rather than providing a larger payout.