South Carolina Personal Lines Practice Exam

In insurance terms, which value is calculated based on the property’s current worth rather than its replacement cost?

1. Stated value

2. Agreed value

3. Market value

4. Replacement cost

The correct answer is: Market value

Market value is the correct choice because it refers to the price at which a property would sell in the current market, reflecting what a buyer is willing to pay based on current conditions, location, and other factors. This valuation takes into account the property's current worth, including depreciation, local demand, and comparable sales in the vicinity. In contrast, replacement cost focuses specifically on the expense to rebuild or replace the property with a similar one using current materials and standards, without factoring in depreciation. Stated value is typically a predetermined amount that the insured and insurer agree upon for certain types of coverage, not necessarily linked to the property’s market dynamics. Agreed value refers to a specific amount agreed upon by both parties, often used in unique properties or collectibles, ensuring that the insured receives that amount in the event of a total loss, regardless of market fluctuations. Thus, market value distinctly represents the actual worth of the property as influenced by current market factors.