ADJUSTERSINTERNATIONAL.COM 5 • The insurer pays the full $75,000 limit and the insured retains the damaged property, leaving the insured with at least a theoretical possibility of being made whole. • The insurer deducts all or part of the $25,000 salvage value from the $75,000 recovery payment, leaving the insured with some or all of the salvage, but no opportunity to be made whole. We can see that the insured in this scenario has an opportunity to be made whole only if the insurer pays the full limit and allows the insured to retain the damaged property without being debited for salvage. Enter Complications The presence of a deductible and/or coinsurance requirement, and the loss settlement terms, would further complicate the settlement. Suppose the policy included a $5,000 deductible. Would the deductible be taken against the total $100,000 loss, with the insured receiving the entire $75,000 available under the limit? Or would the deductible be taken against the portion of the loss that is insured, leaving the policyholder with, in efect, only $70,000 of coverage? If a commercial insured retains property for salvage, the lower the estimated salvage value, the less the salvage debit — and the greater the insurance payment. Then there are the questions of coinsurance and the valuation of loss settlements. Personal property losses can be settled on a replacement cost basis, which is the cost to repair or replace damaged property with something equivalent, or on an actual cash value basis, the cost to repair or replace minus a deduction for depreciation. Coinsurance is the requirement that your limit of insurance be equal to a certain percentage of the value of the covered property, typically 70 percent to 80 percent, but sometimes as low as 50 percent. The rationale behind coinsurance requirements is that, the more value you have at risk, the greater the chance you will have a loss. (To illustrate, when an organization insures fve buildings for windstorm damage, it has a greater chance of incurring a windstorm loss than if it insured only one building. Even if the limit of coverage is only enough to replace a single building, the basis for rating the coverage must consider the value of
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