Registered Insurance Brokers of Ontario (RIBO) Practice Exam

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Prepare for the Registered Insurance Brokers of Ontario Test. Study with comprehensive flashcards and multiple choice questions, each question provides hints and detailed explanations. Ace your exam with confidence!

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What does the insurer pay when a completely insured home is destroyed, given a policy limit that matches current construction costs?

  1. The full insured amount only

  2. The replacement cost without depreciation

  3. The actual cash value less deductible

  4. The market value of the home

The correct answer is: The actual cash value less deductible

The most appropriate answer to the question is that the insurer pays the replacement cost without depreciation. When a completely insured home is destroyed and the policy limit matches current construction costs, it means that the insurance policy is designed to cover the expenses to replace the home as it was before the loss, using current materials and construction methods. This is important because policies that focus on replacement cost provide full financial coverage necessary to rebuild the property, without taking into account depreciation that may have occurred over time. In contrast, the actual cash value method deducts depreciation from the value of the home at the time of loss, which would not apply here given that the destruction of a completely insured home with appropriate policy limits is aimed at providing actual replacement cost. The other options do not align with the objective of a replacement cost policy, as they either limit the payment to a specific cash value or market value, failing to account for the full rebuilding expense.