Hawaii Insurance Adjuster License Practice Exam

How are losses typically settled under an inland marine policy?

1. Replacement Cost

2. Actual Cash Value

3. Guaranteed Replacement Cost

4. Market Value

The correct answer is: Actual Cash Value

Under an inland marine policy, losses are typically settled based on Actual Cash Value (ACV), which is the value of an item at the time of loss, taking into account depreciation. This method reflects the fair market value of the property immediately before the loss occurs, accounting for wear and tear. The emphasis on Actual Cash Value is significant in the context of inland marine insurance, as this type of coverage often pertains to goods in transit or specific types of property that may fluctuate in value, such as art or jewelry. Settling losses using ACV ensures that the insured receives compensation that realistically represents what their property was worth at the moment of loss, rather than an inflated replacement cost. While other methods like Replacement Cost or Guaranteed Replacement Cost may offer different valuation approaches—where the insured might receive the full cost to replace an item without deducting depreciation—these are less common for inland marine policies. Similarly, Market Value refers to the amount which property would sell for in the open market, which can vary widely and does not consider depreciation in the same manner as ACV. Thus, the correct approach in most inland marine policy scenarios remains ACV due to its practical alignment with actual loss valuation.