Insurance Principles and Policy Coverage
Insurance Principles and Policy Coverage
This domain tests the coverage vocabulary a public adjuster must apply before estimating a loss: indemnity, insurable interest, valuation, deductibles, conditions, and exclusions.
Core rules
- Indemnity restores the insured to pre-loss position, not better; insurable interest must exist at the time of loss.
- ACV equals replacement cost minus depreciation; RCV policies pay ACV first and withhold recoverable depreciation until repair or replacement is documented.
- Deductibles apply per occurrence unless the policy says otherwise; coinsurance and limits can reduce recovery.
- Read declarations, coverage forms, endorsements, exclusions, and conditions together; exclusions are interpreted narrowly, but policy conditions must be met.
- Common first-party conditions include prompt notice, proof of loss, cooperation, mitigation, appraisal, and subrogation.
Worked example
A homeowner has RCV coverage, a $2,000 deductible, and a 20-year-old roof damaged by hail. The adjuster calculates replacement cost at $20,000 and depreciation at $8,000. The initial ACV payment is $10,000 ($20,000 − $8,000 − $2,000). If the insured replaces the roof and submits the contract and proof of payment, the withheld $8,000 depreciation may be recoverable, subject to policy limits and conditions. The public adjuster must not promise the depreciation up front.
Traps
- Treating market value as ACV; ACV is a policy calculation, not sale price.
- Ignoring an endorsement that changes the base form.
- Forgetting that recoverable depreciation is conditional.
- Assuming matching or code upgrades are covered without checking the policy.