Washington State Insurance Practice Exam

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Prepare for the Washington State Insurance Exam with comprehensive study materials and quizzes. Enhance your understanding of insurance concepts through engaging questions and detailed explanations to excel in your upcoming exam.

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What method of valuation reflects the principle of indemnity by considering the reduction of value of property as it ages?

Actual Cash Value (ACV)
Functional Replacement Cost
Market Value
Stated Value

The correct answer is: Actual Cash Value (ACV)

Explanation Actual Cash Value (ACV) is the only method of valuation that considers the reduction of value of property as it ages, reflecting the principle of indemnity. While functional replacement cost considers the cost of replacing the property, market value considers the current market value of the property, and stated value simply records the stated value of the property without considering its depreciation. Therefore, A is the most appropriate answer.