1. Forms
2. FP
3. FP-04-36

What the Form Is

The FP 04 36, titled Replacement Cost – Household Personal Property, is an endorsement to a farm insurance policy. Its primary function is to change the method of valuation for losses to Coverage C – Household Personal Property. Standard farm policies, such as the FP 00 12 Farm Property–Farm Dwellings, Appurtenant Structures and Household Personal Property Coverage Form, often settle losses to personal property on an Actual Cash Value (ACV) basis, which accounts for depreciation. This endorsement overrides that provision and allows for settlement on a Replacement Cost Value (RCV) basis, meaning the insurer will pay the cost to replace the damaged or destroyed property with new property of like kind and quality, without a deduction for depreciation, subject to policy terms and limits.

Classes of Business It Applies To

This endorsement is specifically designed for use with farm insurance policies that provide coverage for household personal property. It is relevant for individuals or families residing on a farm whose personal belongings within their dwelling are insured under such a policy.

Real-world example: Imagine a farming family experiences a fire that destroys much of their furniture, clothing, and electronics. If they only have ACV coverage, the insurance payout would be for the depreciated value of these items (e.g., a 5-year-old sofa might be valued at a fraction of its original cost). With the FP 04 36 endorsement, the family would be eligible for the amount it costs to buy a new sofa of similar quality, helping them to more fully recover from the loss.

Special Considerations

• Optional Coverage: This is an optional endorsement that must be specifically added to the policy, usually at an additional premium.
• Limitations on Certain Property: Even with this endorsement, certain types of property may still be settled at ACV. These often include items like antiques, fine arts, memorabilia, articles that are not maintained in good or workable condition, or items that are obsolete or stored and not used.
• Replacement Requirement: Typically, the full replacement cost value is not paid until the property is actually repaired or replaced. The insurer might initially pay the ACV, with the remaining recoverable depreciation paid once the insured provides proof of replacement.
• Policy Limits: The replacement cost payment is still subject to the overall limit of liability for Coverage C shown in the policy declarations.

Key Information for Agents and Underwriters

• Explaining Value: Agents should clearly explain the difference between ACV and RCV to clients, ensuring they understand the financial benefit of this endorsement, especially for replacing essential household items after a significant loss.
• Adequacy of Limits: When this endorsement is added, it's crucial to ensure that the Coverage C limit is sufficient to cover the replacement cost of the insured's belongings, not just their depreciated value.
• Underwriting: Underwriters might consider the age and condition of the dwelling and the general upkeep of the premises. While the endorsement applies to personal property, the overall risk profile of the insured can be a factor. The premium for this endorsement will reflect the increased exposure for the insurer.
• Excluded Items: Both agents and underwriters should be clear about the categories of property that remain valued at ACV even with the endorsement to prevent misunderstandings at the time of a claim.
• Comparison: This endorsement provides coverage for household goods that is essentially the same as the ISO homeowners endorsement HO 04 90.