Q: Can you explain the difference between a “valued policy” state and one that is not? Does this apply to both personal and commercial lines policies? Is it specific to named or special form perils, or to certain types of policies?

A: In the most general terms, valued policy laws require an insurer to pay the face amount of the policy in the event of a total loss to a structure. In these situations, it does not matter whether the replacement cost is lower than the face amount.

There are also "modified valued policy” states that require an insurer to refund the premium for any additional amount of coverage over the replacement cost. However, the carrier doesn't have to pay any more than the replacement cost or actual cash value, depending on the settlement option in play. 

Each valued policy state applies the law differently. Some states limit their laws to residential properties; some extend to all property types. Some states limit the causes of loss to which the statue applies—most commonly, fire only. Consult your state's law for specifics. 

Here is some information that may help: 

 
Chris Boggs is executive director of the Big “I” Virtual University (VU).

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