West Virginia Property and Casualty Licensing Practice Exam

If your agreed value policy expires, what happens to your policy?

1. It renews automatically

2. It reverts back to the coinsurance clause

3. It cancels outright

4. It enters a grace period

The correct answer is: It reverts back to the coinsurance clause

When an agreed value policy expires, it typically reverts back to the coinsurance clause. This is because an agreed value policy is designed to provide a predetermined amount of coverage for the insured property, with both parties agreeing on that value at the outset. Once the policy term concludes without renewal or replacement, the fundamental parameters for how coverage is determined shift. Under a coinsurance clause, the insured property's value is usually determined on its actual cash value (ACV), and if the policyholder does not insure the property for at least a certain percentage of its value (often around 80% to 90%), they may face a penalty in the event of a loss. This means that post-expiration, any claims would not adhere to the previously agreed amount but rather be assessed against the lesser of the actual value of the property or the amount insured. This shift can lead to significantly different coverage dynamics compared to when the agreed value was in effect. This understanding is critical for policyholders who need to plan for appropriate valuation and coverage when an agreed value policy nears its expiration, ensuring they do not inadvertently face reduced or inadequate protection.