South Carolina Personal Lines Practice Exam

How much insurance coverage is required for policies to qualify for replacement cost coverage?

1. 50% of replacement cost

2. 70% of replacement cost

3. 80% of replacement cost

4. 100% of replacement cost

The correct answer is: 80% of replacement cost

To qualify for replacement cost coverage in a property insurance policy, the standard requirement is that the insured must maintain coverage equal to at least 80% of the property's replacement cost. This threshold is essential because it determines the extent to which a policyholder can recover the cost of replacing their property in the event of a loss. By having a policy that meets or exceeds this percentage, the insured is more likely to receive the full amount necessary to rebuild or replace items lost due to covered events. If coverage is below this threshold, the insurer may apply a penalty when calculating the amount payable for a loss, potentially leading to a lower payout. Maintaining coverage at or above 80% helps to ensure that the insured is protected against depreciation and rising rebuilding costs, which might not be reflected in the market value of a property.