Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

When is a loss considered due diligence for payment on a Replacement Cost Basis?

1. When replacement occurs within three months

2. When the insured actively manages the replacement process

3. When costs are minimized during replacement

4. When the property is replaced in a timely manner

The correct answer is: When the property is replaced in a timely manner

A loss is considered due diligence for payment on a Replacement Cost Basis when the property is replaced in a timely manner. This means that the insured has acted promptly to replace or repair the damaged property. Insurers require the insured to undertake timely actions to ensure that the replacement cost can be justified, providing a basis for the insurer to pay out on the replacement cost instead of just the actual cash value, which would reflect depreciation. Timeliness in replacement ensures that the insured is not only proactive but that the condition and value of the property do not deteriorate further. Delays in replacement can lead to issues that might affect the overall valuation of the property, which can complicate claims processing and may not meet the criteria for Full Replacement Cost Coverage. While other factors, such as managing the replacement process and minimizing costs, contribute to an effective insurance claim, the core requirement for due diligence is centered around the timely replacement of the property. This action directly aligns with the principles underlying Replacement Cost coverage in insurance policies.