CIA Client Advisory Services 2

Question 1

A property insured for $600,000 has a replacement cost of $1,000,000 and an 80% coinsurance requirement. What is the coinsurance penalty applied to a $200,000 loss?

Accepted Answer

$150,000

Answer

The coinsurance formula is (Amount Carried / Amount Required) × Loss = ($600,000 / $800,000) × $200,000 = $150,000.

Question 2

When advising a client on replacement cost versus actual cash value coverage, which factor most significantly differentiates the two?

Accepted Answer

Depreciation deduction applied to the loss settlement

Answer

ACV coverage deducts depreciation from the settlement amount, whereas replacement cost coverage pays the full cost to repair or replace without depreciation.

Question 3

A client's building was appraised at $500,000 replacement cost two years ago but construction costs have risen 20%. What should the appraiser advise?

Accepted Answer

Increase coverage limits to approximately $600,000

Answer

Rising construction costs create underinsurance risk, and the appraiser should recommend updating limits to reflect the current replacement cost of approximately $600,000.

Question 4

Agreed value coverage differs from standard replacement cost coverage primarily because it:

Accepted Answer

Suspends the coinsurance clause and guarantees payment of the stated amount at total loss

Answer

Agreed value coverage eliminates coinsurance penalties by having insurer and insured agree in advance on the property's value, which is paid in full at total loss.

Question 5

A blanket insurance policy covering multiple locations is MOST advantageous for a client when:

Accepted Answer

Some locations are undervalued relative to others, allowing the aggregate limit to offset individual shortfalls

Answer

Blanket coverage allows the total limit to apply to any one location, so higher-value sites benefit from the aggregate without requiring precisely scheduled per-location values.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA Client Advisory Services 2