In a flood loss scenario where the insured's principal residence is occupied 80% of the year, which settlement method applies?

• A. 80% coinsurance
• B. Replacement Cost
• C. ACV
• D. Valued Policy

Answer: (B)

The key idea is that how a flood loss is settled depends on occupancy status and whether the policy coverage meets the coinsurance threshold. When a dwelling is owner-occupied and insured to at least 80% of its replacement cost, losses are settled on a replacement cost basis—you’re paid enough to replace the home with a like kind and quality at current prices, with no deduction for depreciation. In this scenario, the insured’s principal residence is occupied 80% of the year, which signals owner-occupancy and meets the typical 80% replacement-cost threshold, so replacement cost applies.

If the dwelling were not owner-occupied or not insured to 80% of replacement cost, the settlement would more likely be on an actual cash value basis (depreciation deducted) or subject to a coinsurance penalty. A valued policy isn’t applicable here for a standard residential flood loss.