How does the co-insurance clause affect my coverage?Ĭontact us by phone (800) 874-9191, FAX (602) 992-8327 For example, if the property policy is endorsed with a selling price endorsement for finished goods, the proper value to insure for finished goods is the cash selling price, less any customary discounts and expenses that otherwise would be incurred. The value reported should match the applicable valuation basis. Another problem with using “book” value is that it may reflect only the items that are “capitalized.” To determine adequate limits, one must add “expensed” items into capitalized items.Ĭertain property may be subject to a special valuation basis other than replacement cost or actual cash value. The depreciation rate reflected in “book” value would yield a terribly inadequate settlement. Note that accounting or “book” value has no relevance to either of the previous methods of valuation. Insurers usually require a statement of property values signed by the insured as a condition of activating or including an agreed value provision in a commercial property policy. As long as this endorsement is in effect, there would be no coinsurance penalty at the time of a claim. This endorsement is an agreement made by the insurance company wherein it waives the coinsurance clause on the specified property. However, both are based on the cost today to replace the damaged property with new property. The only difference between replacement cost and actual cash value is a deduction for depreciation. ![]() Courts have varied in their rulings as to whether or not depreciation includes obsolescence (loss of usefulness as a result of outmoded design, construction, etc.). Most courts, however, have upheld the insurance industry’s traditional definition: the cost to replace with new property of like kind and quality, less depreciation. Some courts have interpreted the term to mean “fair market value,” which is the amount a buyer would pay a seller if neither were under undue time constraints. The term “actual cash value” is not as easily defined. Refer to your policy for the exact definition and explanation of replacement cost. This applies unless the limit of insurance or the cost actually spent to repair or replace the damaged property is less. Simply stated, it means the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose. The term “replacement cost” is defined or explained in the policy. In the case of the stolen camera, the insurance company would deduct from its replacement cost an amount for all the wear and tear it endured prior to the time it was stolen. The insurance company determines the depreciation based on a combination of objective criteria (using a formula that takes into account the category and age of the property) and subjective assessment (the insurance adjuster’s visual observations of the property or a photograph of it). It represents the dollar amount you could expect to receive for the item if you sold it in the marketplace. ![]() Actual cash value is equal to the replacement cost minus any depreciation (ACV = replacement cost – depreciation). In contrast, actual cash value (ACV), also known as market value, is the standard that insurance companies arguably prefer when reimbursing policyholders for their losses. ![]() The insurer will not take into consideration the fact that you ran three rolls of film through the camera every day for the last two years, causing a considerable amount of wear and tear. If your camera is stolen, a replacement cost policy will reimburse you the full cost of replacing it with a new camera of like kind. Payment based on the replacement cost of damaged or stolen property is usually the most favorable figure from your point of view, because it compensates you for the actual cost of replacing property. There are several different methods by which your insurance company may calculate the amount it will pay you for a loss.
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