Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

Which condition must the insured meet for replacement cost coverage after a loss?

1. Replacement must be done within 60 days

2. Replacement must be made with due diligence

3. The property must be at a designated location

4. Documentation of the original property must be provided

The correct answer is: Replacement must be made with due diligence

Replacement cost coverage generally requires the insured to replace damaged or destroyed property with similar new property without considering depreciation. The condition of making the replacement with due diligence is crucial because it ensures that the insured takes appropriate and timely action to replace the lost property. This requirement protects the insurer by encouraging prompt repairs or replacements, minimizing any potential for prolonged loss and limiting the duration of the risk. Fulfilling due diligence denotes that the insured is actively working to restore their property to its original condition. Whether this means obtaining estimates, purchasing new items, or managing contractors, the key is the insured's committed and timely effort to engage in the replacement process. While other conditions such as documenting the original property or ensuring that the property is at a designated location are important in different contexts, they do not specifically capture the essence of actively replacing the property in a timely manner, which is why due diligence stands out as the primary requirement in this scenario.