| (a) A material change includes a change from replacement
cost coverage to actual cash value coverage. The change might be to
the entire policy, or to any part of it. This section applies only
to changes from replacement cost to actual cash value.
(b) A notice of material change must explain the terms
"replacement cost" and "actual cash value." Using plain language,
the notice must at a minimum explain that:
(1) for replacement cost, the policy will pay to repair
or replace the damaged item based on the current cost of the item;
and
(2) for actual cash value, the policy will pay less
based on the item's characteristics, such as age or condition.
(c) If the term "depreciation" is in the notice, the
notice must use plain language to explain that "depreciation" is the
amount of value that an item loses over time, typically through use,
wear and tear, or by becoming obsolete.
(d) A notice of material change must include at least
one plain-language example that shows the difference in dollar amounts
between coverage before and after the material change.
(1) See Figure: 28 TAC §5.9752(d)(1) for one possible
way to list the amounts a policyholder might receive for a total roof
replacement. Insurers are not limited to using the Figure as the example,
and they may use other content and formatting.
Attached Graphic
(2) If the policy includes a depreciation schedule,
the notice of material change must list the form name and page number
that contains the depreciation schedule.
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