Which statement is true about the agreed value method of property valuation used in some policies?

Which statement is true about the agreed value method of property valuation used in some policies?

• A. At the time the policy is written, only the insurer must agree to the value specified in the policy.
• B. If a total loss occurs, the insurer will pay the agreed value specified in the policy.
• C. The agree value method illustrates the principle of indemnity.
• D. The agreed value method stipulates what the agreed value has to be relative to the true value of the property.

Answer: (B)

The agreed value method fixes a value for the insured property that both insurer and insured agree to when the policy is issued. In a total loss, the insurer pays that predetermined amount, regardless of the property's actual replacement cost at the time or any depreciation. This approach eliminates coinsurance penalties and disputes over valuation by tying the payout to a set figure rather than to market value or replacement cost. This is why the statement about paying the agreed value on a total loss is correct. It isn’t solely decided by the insurer, and it doesn’t rely on depreciation or the actual cost to replace the item. It also doesn’t hinge on the property’s true current value, since the agreed value is a fixed amount agreed in the policy.

The agreed value method fixes a value for the insured property that both insurer and insured agree to when the policy is issued. In a total loss, the insurer pays that predetermined amount, regardless of the property's actual replacement cost at the time or any depreciation. This approach eliminates coinsurance penalties and disputes over valuation by tying the payout to a set figure rather than to market value or replacement cost.

This is why the statement about paying the agreed value on a total loss is correct. It isn’t solely decided by the insurer, and it doesn’t rely on depreciation or the actual cost to replace the item. It also doesn’t hinge on the property’s true current value, since the agreed value is a fixed amount agreed in the policy.