Client Advisory Services Flashcards
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Read the first 7 Client Advisory Services flashcards as text
A property insured for $600,000 has a replacement cost of $1,000,000 and an 80% coinsurance requirement. What is the coinsurance penalty applied to a $200,000 loss?
Answer: $150,000
The coinsurance formula is (Amount Carried / Amount Required) × Loss = ($600,000 / $800,000) × $200,000 = $150,000.
When advising a client on replacement cost versus actual cash value coverage, which factor most significantly differentiates the two?
Answer: Depreciation deduction applied to the loss settlement
ACV coverage deducts depreciation from the settlement amount, whereas replacement cost coverage pays the full cost to repair or replace without depreciation.
A client's building was appraised at $500,000 replacement cost two years ago but construction costs have risen 20%. What should the appraiser advise?
Answer: Increase coverage limits to approximately $600,000
Rising construction costs create underinsurance risk, and the appraiser should recommend updating limits to reflect the current replacement cost of approximately $600,000.
Agreed value coverage differs from standard replacement cost coverage primarily because it:
Answer: Suspends the coinsurance clause and guarantees payment of the stated amount at total loss
Agreed value coverage eliminates coinsurance penalties by having insurer and insured agree in advance on the property's value, which is paid in full at total loss.
A blanket insurance policy covering multiple locations is MOST advantageous for a client when:
Answer: Some locations are undervalued relative to others, allowing the aggregate limit to offset individual shortfalls
Blanket coverage allows the total limit to apply to any one location, so higher-value sites benefit from the aggregate without requiring precisely scheduled per-location values.
An inflation guard endorsement is BEST described as an automatic mechanism that:
Answer: Periodically increases property coverage limits by a set percentage to keep pace with rising costs
An inflation guard endorsement automatically increases coverage limits at a predetermined percentage, helping clients maintain insurance-to-value between formal appraisals.
When a client asks how to achieve proper insurance-to-value, the appraiser's PRIMARY recommendation should be to:
Answer: Base coverage limits on a current, professionally conducted replacement cost appraisal
A current replacement cost appraisal provides the most accurate basis for setting coverage limits and satisfying coinsurance requirements.