Valued Policy Law
A state law requiring insurance companies to pay the full policy face value for a total loss, regardless of the actual value of the property at the time of the loss. Currently enacted in approximately 20 states.
What Is a Valued Policy Law
A valued policy law (VPL) is a state statute that requires an insurance carrier to pay the full face value of a property insurance policy when the insured property is declared a total loss, eliminating the carrier's ability to argue that the property was worth less than the insured amount at the time of the loss. Without a VPL, carriers can insure a property for $400,000, collect premiums based on that amount, and then argue the home was only worth $300,000 when it was destroyed.
How VPL Affects Claims
In a valued policy state, the total loss determination is the critical threshold. Once a property is declared a total loss, the carrier must pay the full dwelling coverage amount. This eliminates disputes over actual cash value, depreciation, and market conditions. The carrier accepted the risk at the insured amount when it wrote the policy, and the VPL holds them to that agreement.
Practical Impact for Contractors
VPL matters most on catastrophic loss claims where the repair cost approaches or exceeds the policy limits. In a valued policy state, if the documented repair cost proves the home is a total loss, the homeowner receives the full policy value. This can simplify large loss claims by removing the depreciation and valuation disputes that complicate partial loss settlements. Contractors working in valued policy states should understand whether their state's VPL applies to partial losses as well, because some state VPL statutes only trigger on total losses.
Frequently asked questions
A valued policy law requires the insurance company to pay the full face value of the dwelling coverage for a total loss, even if the property's actual value is less than the policy amount. In a valued policy state, if a home is insured for $400,000 and is a total loss, the carrier pays $400,000 regardless of what the home was actually worth.
Approximately 20 states have some form of valued policy law. The specifics vary by state. Some apply only to total losses, others extend to partial losses. Common valued policy states include Florida, Texas, Louisiana, Mississippi, Arkansas, and several others. Always verify the current statute in the specific state.
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