What is a Valued Policy Law?

Valued policy law (VPL) is a legal statute that requires insurance companies to pay the total value of a policy to the insured in the event of a total loss. Valued policy law does not consider the actual cash value of the insured property at the time of the loss; instead, the law mandates total payment.

In contrast to an unvalued or open insurance policy, which requires the worth of the property to be established by providing invoices, estimates, claims adjusters, or other documentation after a loss, a valued policy does not need this.

Understanding Valued Policy Law

When insured property is so severely damaged or destroyed that it cannot be restored or recovered, it is considered a complete loss.2. Generally, the insurance policy’s maximum compensation amount is activated with a total loss.

Actual cash value or replacement cost are the two techniques that insurance plans often utilize to calculate the worth of a loss.3 The most often used criterion for figuring out how much insurance is required, how much needs to be paid for a loss, and how much will be the basis for any coinsurance or comparable obligation is the actual cash value. Replacement cost at the time of loss, minus depreciation, is the definition of actual cash value. However, the broad evidence rule says that the actual cash value of a loss should include all the relevant evidence that an expert would use to set the value of the property, such as the fair market value and the cost of replacing the property, less any depreciation. This rule is changing the definition through case law and state laws.

Replacement cost refers to the amount the business will pay for repairs or replacements before and after the deductible is applied.

Valued insurance rules generally stipulate that the sum mentioned in policy declarations must correspond to the amount paid to the insured in dollars at the moment of loss. The insurer can only dispute full payment if the covered item’s worth equals the insurance policy’s maximum at the time of loss. Furthermore, any policy provision that conflicts with valued policy legislation is deemed invalid in the most respected policy states.

These laws are only present in some states in the Union. Arkansas, California, Florida, Georgia, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, South Carolina, South Dakota, Tennessee, Texas, West Virginia, and Wisconsin are among the states that do have valuable policy legislation.

Worthwhile Policy Law Debate

Hurricane Katrina caused some policyholders to not receive full coverage due to interpretations of the valued policy statute, forcing the Louisiana insurance industry to review the law. Six Some insurers contend that the law does not apply because some losses were due to a non-covered peril (flood), while others were due to “mixed causation” (a mix of a covered hazard (wind) and a non-covered risk (surge), and other sources, such as FEMA grants and the National Federal Flood Insurance Program, offset the entire loss.

Conclusion

• A legislative requirement known as valued property legislation (VPL) requires insurers to pay the entire worth of a property if damage is considered a complete loss.
• The replacement cost technique or the actual cash value method may be used to determine the amount that must be reimbursed under VPL.
• Only a few states in the Union have codified valued property laws; in other states, losses covered by insurance need to be shown.