Arkansas Insurance Adjuster Practice Exam

Which policy condition protects against a mortgage company's claim for indemnity due to appreciation in the home's value?

1. Replacement Cost Coverage

2. Actual Cash Value

3. Agreed Value

4. Insurable Interest

The correct answer is: Insurable Interest

Insurable Interest is the correct answer because it refers to the legal requirement that a person or entity purchasing insurance must have a financial stake in the property being insured. In this case, the mortgage company holds an insurable interest in the home as it acts as collateral for the mortgage loan. Explanation A: Replacement Cost Coverage typically covers the cost to replace the property in the event of damage or loss, and would not apply to a mortgage company's claim for indemnity due to appreciation. B: Actual Cash Value is the cost to replace the property minus depreciation, and would also not apply to a mortgage company's claim for indemnity. C: Agreed Value is a policy where the insurer and insured agree on the value of the property beforehand, and would not protect against a mortgage company's indemnity claim for appreciation. Therefore, D: Insurable Interest is the only option that directly addresses the given question.