Q: Can you explain the difference between a “valued policy” state and one that is not? Does this apply to both personal and commercial lines policies? Is it specific to named or special form perils, or to certain types of policies?
A: In the most general terms, valued policy laws require an insurer to pay the face amount of the policy in the event of a total loss to a structure. In these situations, it does not matter whether the replacement cost is lower than the face amount.
There are also "modified valued policy” states that require an insurer to refund the premium for any additional amount of coverage over the replacement cost. However, the carrier doesn't have to pay any more than the replacement cost or actual cash value, depending on the settlement option in play.
Each valued policy state applies the law differently. Some states limit their laws to residential properties; some extend to all property types. Some states limit the causes of loss to which the statue applies—most commonly, fire only. Consult your state's law for specifics.
Here is some information that may help:
Causes of Loss
All real property
Fire and natural disasters, excluding flood and quake
2052, 53, 54, 55, 56, 58 and 75
All perils covered by the property policy
Any building, including mobile and manufactured homes
One or two family residential buildings
All improvements on real property
Fire, tornado, wind, lightning
Inanimate or immovable property
All perils covered by the policy
33-24-102 and 103
Improvements to real property
Fire, tornado, wind, lightning, explosion
Fire and lightning
Fire, lightning, and tornado
56-7-801 to 803
Chris Boggs is executive director of the Big “I” Virtual University (VU).
This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.