North Carolina Adjuster Practice Exam

What limit applies to personal property coverage under a standard homeowners policy?

1. Replacement cost value

2. Actual cash value

3. 50% of Coverage A

4. 100% of Coverage B

The correct answer is: Actual cash value

In a standard homeowners policy, personal property coverage is generally provided on an actual cash value basis. This means that in the event of a covered loss, the insurance company will reimburse the policyholder for the value of the property at the time of the loss, minus depreciation. The actual cash value reflects the cost to replace the item minus any wear and tear or obsolescence. While other options may sound plausible within different contexts of insurance, the actual cash value is the typical method for determining the loss for personal property under a standard homeowners policy. This approach allows the insured to receive a settlement that takes into account the loss in value of the personal property due to age or condition, rather than the cost to replace it with new items at current prices. In contrast, some policies may include replacement cost coverage for the dwelling (Coverage A), but personal property often defaults to actual cash value unless the policy explicitly states otherwise.