Arizona Adjuster Practice Exam

Which factors should an adjuster consider when determining depreciation in a claim?

1. Market value and economic conditions

2. Physical deterioration and functional obsolescence

3. Location and historical data

4. Insurance coverage and policy limits

The correct answer is: Physical deterioration and functional obsolescence

When determining depreciation in a claim, the adjuster must consider physical deterioration and functional obsolescence. Physical deterioration refers to the wear and tear on a property or asset due to age, exposure to elements, and general usage over time. This type of depreciation reflects the actual condition of the property at the time of loss and is crucial in establishing the current value of the insured item. Functional obsolescence, on the other hand, occurs when a property is less desirable because of changes in design, technology, or market needs. For example, an older building might lack the amenities that modern consumers expect, which can significantly reduce its value even if it has been well-maintained. Together, these two factors provide a comprehensive assessment of depreciation that is essential for an accurate and fair settlement of the claim. This understanding ensures that the adjuster can effectively communicate the basis for depreciation to insured parties and related stakeholders, maintaining transparency in the claims process. Other factors such as market value, location, insurance coverage, and policy limits may influence the broader context of the claim settlement but do not specifically address the elements that contribute to depreciation itself.