South Carolina Personal Lines Practice Exam

Which statement is true regarding single dwellings insured to at least 80% of replacement value?

1. Subject to a $1000 deductible

2. Automatically provided replacement cost coverage

3. Eligible for maximum compensation under the flood program

4. Excluded from flood insurance policy

The correct answer is: Automatically provided replacement cost coverage

The statement regarding single dwellings insured to at least 80% of replacement value being automatically provided replacement cost coverage is accurate because many insurance policies, particularly in the context of homeowners insurance, stipulate that if a dwelling is insured to a specified percentage of its replacement value—commonly 80%—the insured will qualify for replacement cost coverage rather than actual cash value. Replacement cost coverage means that in the event of a covered loss, the insurer will pay the cost to replace the damaged property without deduction for depreciation, provided the dwelling meets the specified insured value criteria. This benefits policyholders by ensuring they can rebuild or replace their home with materials of similar kind and quality, instead of receiving a payout based on the diminished value of the property due to age and wear. Other options are not applicable in this context. A typical deductible does not inherently connect to the value insured or the coverage type but relates more to the terms set forth in the individual policy. The flood program has separate eligibility criteria that aren’t specifically linked to the percentage of replacement value for a dwelling, and flood insurance policies function independently of typical homeowners insurance, leading to exclusion from such coverage specifically.