Washington State Insurance Practice Exam 2025 – Comprehensive All-in-One Guide to Exam Success!

Replacement Cost is the correct answer because it is the method of loss valuation that involves replacing damaged property with like kind and quality at today's prices without deducting for depreciation. This method allows the insured to recover the full cost of replacing the damaged property, providing them with the financial means to restore their property to its pre-loss condition. This ensures that the insured is not financially burdened by having to cover the depreciation costs themselves.

Option A, Actual Cash Value, deducts for depreciation, so it does not cover the full replacement cost. Option B, Functional Replacement Cost, considers replacing the damaged property with something that serves the same function but might not be identical in all aspects, making it different from like kind and quality. Option D, Stated Value, is a predetermined value agreed upon by the insured and the insurer and may not necessarily reflect the actual cost of replacement.