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⚖️ '''Valued policy law''' is a state-enacted statute that requires an [[Definition:Insurance carrier | insurer]] to pay the full [[Definition:Face value | face amount]] of a [[Definition:Property insurance | property insurance]] policy in the event of a [[Definition:Total loss | total loss]], regardless of the property's actual market or replacement value at the time of the [[Definition:Loss | loss]]. These laws exist in roughly two dozen U.S. states and were originally adopted to prevent carriers from collecting [[Definition:Premium | premiums]] on high [[Definition:Sum insured | stated values]] while later disputing the true worth of the property when a claim arose. The practical effect is that once a total loss is established, the policy limit becomes the sole measure of recovery—no depreciation, no appraisal contest.

📜 Under a valued policy law, the critical determination shifts from "how much was the property worth" to "was the loss total." When a covered [[Definition:Peril | peril]]—fire, windstorm, or another named event depending on the statute—destroys the [[Definition:Insured property | insured structure]] beyond a defined threshold, the [[Definition:Adjuster | adjuster's]] role narrows to confirming total-loss status rather than negotiating a depreciated settlement figure. This places a heightened burden on [[Definition:Underwriter | underwriters]] at the point of policy issuance: if the [[Definition:Sum insured | coverage limit]] is set too high relative to the property's actual value, the carrier bears the full exposure with no post-loss correction mechanism. Consequently, insurers writing in valued-policy-law states invest more heavily in upfront [[Definition:Property valuation | property valuation]], [[Definition:Inspection | inspections]], and [[Definition:Replacement cost estimation | replacement cost estimation]] tools to ensure limits are appropriate.

🔑 The significance of these statutes extends to several interconnected areas of insurance practice. [[Definition:Moral hazard | Moral hazard]] concerns intensify when a [[Definition:Policyholder | policyholder]] holds coverage that exceeds true property value, so carriers may impose tighter [[Definition:Underwriting guidelines | underwriting guidelines]], require periodic reappraisals, or limit coverage to [[Definition:Replacement cost | replacement cost]] rather than accepting arbitrary stated values. For [[Definition:Broker | brokers]] and agents operating in affected jurisdictions, understanding valued policy laws is essential to advising clients accurately and setting expectations around both premiums and claims. The laws also influence [[Definition:Reinsurance | reinsurance]] treaty structures, because [[Definition:Reinsurer | reinsurers]] must account for the possibility that total-loss payouts may exceed market-value estimates when pricing catastrophe-exposed portfolios in these states.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Total loss]]
* [[Definition:Replacement cost]]
* [[Definition:Actual cash value (ACV)]]
* [[Definition:Property insurance]]
* [[Definition:Moral hazard]]
* [[Definition:Sum insured]]
{{Div col end}}

Definition:Valued policy law - Revision history

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