1. Forms
2. FP
3. FP-12-10

What the form is

The FP 12 10, titled "Actual Cash Value – Dwellings and Appurtenant Private Structures," is an endorsement used with farm property insurance policies. Its primary function is to change the loss settlement terms for scheduled farm dwellings and related private structures from Replacement Cost (RC) to Actual Cash Value (ACV). Typically, farm dwelling coverage (like that in the FP 00 12 form) is provided on an RC basis, subject to conditions such as maintaining insurance of at least 80% of the replacement value. This endorsement allows the insurer and insured to agree on an ACV settlement for specific properties listed in the endorsement schedule.

Classes of business it applies to

This endorsement is specifically designed for farm and ranch operations. It is used in conjunction with farm property coverage forms, most notably the FP 00 12 Farm Property – Farm Dwellings, Appurtenant Structures and Household Personal Property Coverage Form. Examples of when this form might be used include:

• Insuring older farmhouses where the replacement cost significantly exceeds the market value or the insured's desire to rebuild to the same standard.
• Properties with unique construction or features where determining an accurate replacement cost is difficult or where the insured prefers a lower premium associated with ACV coverage.
• Situations where the insured does not intend to rebuild or replace the dwelling with a new structure of similar kind and quality.

Special considerations

Key considerations when using the FP 12 10 endorsement include:

• Elimination of Coinsurance/Insurance-to-Value Requirement: By changing the valuation to ACV, this endorsement typically eliminates the 80% insurance-to-value requirement that is a condition for receiving full replacement cost under a standard policy.
• Impact on Loss Settlement: The insured must understand that an ACV settlement will deduct for depreciation based on the age and condition of the property at the time of loss. This means the payout may be significantly less than the cost to repair or replace the damaged property with new materials.
• Scheduling: The specific dwellings and/or appurtenant private structures to which this ACV endorsement applies must be clearly identified in the schedule of the endorsement.

Key information for agents and underwriters

• Pricing: Opting for ACV valuation generally results in a lower premium for the dwelling coverage compared to RC, as the insurer's maximum potential payout is reduced. While one source indicates no specific premium consideration for the endorsement itself, the overall premium for the property will reflect the ACV valuation.
• Risk Assessment: This endorsement is suitable for risks where RC coverage is not desired by the insured or not appropriate due to the age, condition, or market value of the dwelling. Underwriters should carefully evaluate if ACV is a fair valuation for the scheduled property and ensure the insured is fully aware of the implications.
• Coverage Implications: Agents must clearly explain the difference between RC and ACV to the insured. While ACV lowers the premium, it also means the insured will bear a greater portion of the cost to rebuild or replace after a loss, as depreciation will be factored in.
• Underwriting Guidelines: Underwriters should confirm that the scheduled properties are appropriate for ACV valuation. This endorsement can be a useful tool for providing coverage on older or lower-value farm dwellings where the cost to insure on an RC basis might be prohibitive or unnecessary for the insured's needs.