All property insurance policies include a valuation provision that specifies how to value covered property at the time of loss. The most common property valuation methods are: -
· Actual Cash Value
· Replacement Cost
· Agreed Value
Actual Cash Value is the replacement cost of the property minus depreciation.
Depreciation is the allowance for physical wear and tear or technological or economic obsolescence.
Replacement Cost is the cost to repair or replace the property using new material or like kind and quality with no deduction for depreciation.
Agreed Value is a method of valuing property in which the insurer and the insured agreed on the value of property at that time of policy is written, and that amount is stated in the policy declarations and is the amount the insurer will pay in the event of total loss to the property.
In commercial lines of insurance, in some policies, the term agreed value has a different meaning and relates to the amount of insurance that the insured must carry to avoid a penalty for underinsurance.
CHAPTER: 6 CLAIMS
