In Texas, property losses are settled on which basis when recovery may not exceed the smallest of the Actual Cash Value, the policy limit, the amount necessary to repair or replace, or the insured's interest?

• A. Replacement Cost
• B. Actual Cash Value (ACV) Basis
• C. Insurable Value
• D. Market Value

Answer: (B)

The key idea is how losses are valued for settlement under Texas property insurance. Actual Cash Value is the baseline used to determine the payout, because it reflects the value of the property at the time of loss after accounting for depreciation. In Texas, the insured’s recovery is limited not to exceed the smallest of four amounts: the Actual Cash Value, the policy limit, the amount needed to repair or replace the property, or the insured’s interest. This setup means you’re generally looking at depreciation-adjusted value unless other limits kick in. Replacement cost can come into play only if the policy provides replacement-cost coverage; then the payout can be the cost to repair or replace up to the policy limit, potentially bypassing depreciation, but still bounded by the insured’s interest. Insurable value and market value aren’t used as the standard basis in this typical settlement framework. For example, if ACV is $2,000, the policy limit is $5,000, it costs $3,000 to repair, and the insured’s interest is $2,500, the payment would be $2,000—the smallest of the four values.