Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

What must the Insured do before any loss will be paid on a Replacement Cost Basis?

1. Notify the insurer within 30 days

2. Replace the property on the same or adjacent site

3. Complete an inventory count

4. Pay all outstanding premiums

The correct answer is: Replace the property on the same or adjacent site

To have a claim paid on a Replacement Cost Basis, the insured is typically required to replace the damaged or lost property. This means they must actually replace the property on the same or adjacent site, ensuring that the new item meets the standards or specifications similar to that of the original property. Replacement Cost Basis coverage aims to restore the insured to their pre-loss condition, accounting for the cost of new property rather than the depreciated value of the old property. Therefore, replacing the property in the same or adjacent location aligns with fulfilling the terms of this type of coverage, as the insurer is obligated to cover the costs involved in replacing the property as outlined in the policy. While notification of a claim, an inventory count, and ensuring premiums are paid are all important components of the claims process, they do not specifically pertain to the requirement for having a loss paid on a Replacement Cost Basis. Instead, they are more about procedural aspects of filing a claim rather than the fundamental prerequisite of replacing the property itself.