How much an insurance company will pay for a loss covered by the policy depends on what the
policy says about how it will value losses, and how it will split the loss amount with the insured.
The definitions below are common in insurance policies and determine how much will be paid for
a loss.
Actual Cash Value. An amount equivalent to the replacement cost of lost or damaged
property at the time of the loss, less depreciation. With regard to buildings, there is a tendency
for the actual cash value to closely parallel the market value of the property.
Replacement Cost. The cost of replacing property without a reduction for depreciation. By
this method of determining value, damages for a claim would be the amount needed to replace
the property using new materials.
Market Value. The price for which something would sell, especially the value of certain types
of assets, such as stocks and bonds. It is based on what they would sell for under current market
conditions.
Stated Amount. An agreed amount of insurance which is shown on the policy, and which will
be paid in the event of total loss regardless of the actual value of the property.
Valued Policy. A policy which states that in the event of a total loss, a specific amount will be
paid, that being the amount stated in the policy. The effect is to eliminate the need for
determining the actual cash value of an item of property in the event of a total loss. It is
generally used with certain more valuable items, such as fine arts, antiques, and furs.
Open Policy. An open policy is one in which the value of the subject matter is not agreed
upon, but is left to be ascertained in case of loss.
Agreed Amount Clause. Under this clause, the insured and the insurer agree that the
amount of insurance carried will automatically satisfy the coinsurance clause. The effect is to
eliminate the necessity of determining whether or not the amount carried is equal to the stated
percentage of the actual cash value indicated in the coinsurance clause.
Blanket Insurance. A form of property insurance that covers, in a single contract, either
multiple types of property at a single location or one or more types of property at multiple
locations.
Specific Insurance. A policy which describes specifically the property to be covered. This is in
contrast to a policy which covers on a blanket basis all property at one or more locations without
specific definitions. In the case of overlapping coverage’s, specific insurance is considered the
primary one.