Valued Policy Laws: What is a “Valued Policy”
Author: Chris Boggs
“We are needing clarification of what it means to be a 'valued policy' state. Can you please offer an explanation as the difference between a state that is vs. is not? Does this apply to both personal and commercial lines policies? Is it specific to named vs. special form perils or certain types of policies?
In the most general terms, valued policy laws require the insurance carrier to pay the face amount of the policy if the structure is a "total loss." In these situations, it does not matter if the replacement cost is less than the face amount. There are also "modified" valued policy states that require the insurance carrier to refund the premium for any additional amount of coverage over the replacement cost (but the carrier doesn't have to pay any more than the replacement cost or ACV (depending on the settlement option in play)).
Each valued policy state applies the law differently. Some states limit valued policy laws to residential properties; some extend to all property types. Further, some states limit the causes of loss to which the statue applies (most commonly, fire only). You have to read your state's law for specifics.
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Last Updated: February 16, 2018