Los Angeles Claims Adjuster Property and Causality Practice Exam

How are losses settled for the DP-1 form regarding both building and contents?

1. Replacement cost

2. Actual cash value

3. Market value

4. Flat limit

The correct answer is: Actual cash value

The DP-1 form, which refers to the Dwelling Policy form designed for homeowners, typically covers losses on an actual cash value basis. This means that, in the event of a covered loss, the amount paid for the covered property will reflect the current replacement cost of the property minus depreciation. This method takes into account the age and condition of the property at the time of the loss, providing a payout that may be less than what it would cost to replace the property new. Utilizing actual cash value is integral in helping policyholders recover the worth of their possessions and structures without inflating the payout based on potential future costs or market fluctuations. In contrast, other options such as replacement cost would provide coverage based on the new value of the property, market value focuses on what the property could sell for in the current market, and a flat limit suggests a predetermined payout that does not adjust based on the value of the items lost. Each of these alternatives deviates from the actual cash value approach specified in the DP-1 form.