Differentiating Clauses: Agreed Value Clause, Market Value Clause, Reinstatement Value Clause

Aspects to Understand about Valuation Clauses

• Any policy that contains a valuation clause should be carefully reviewed to understand the circumstances when a customer is expecting a profitable amount.
• Valuation clauses have a basis on an arrangement of different factors about the specific property and individual budget requirements.
• It is important to determine the cost of articles covered by insurance but time consuming in getting insurance coverage.
• Policyholders should determine the coverage based on maximum foreseeable loss.

Agreed Value Clause

Agreed value clause or Agreed amount clause is a property insurance clause. Under this clause the insurer agrees to waive the coinsurance requirement. At the starting period of the policy, the insurer and the insured agrees upon an amount that the insurer will pay out when the claim settles.

Certain Aspects of Agreed Value Clause

• The value agreed is based on the saleable value of the insured property.
• FYI, the saleable value and the replacement cost are not the same.
• The saleable value is calculated by deducting depreciation from replacement cost.
• The amount listed on the statement becomes the basis from which policy coverage is determined.

Market Value Clause

Market Value is the price an insured asset in its present state would be able to command in a competitive market setting from a willing buyer. Now, Market Value Clause makes sure that the insured gets the market value of the covered property rather than the actual cash value or the replacement value.

Therefore, Market Value Clauses assign a market rate value to the property rather than basing it on the actual or replacement cost. The amount guaranteed to the customer in the case of a loss is a fundamental element of the insurance policy.

For example: A person buys a flat worth Rs. 10 lakh which is the market value decided by the owner of that flat on the basis of the locality and the money he invested in that flat, like if the owner has installed a modular kitchen and wooden cupboards in the rooms.

Now the buyer brings in the contents like furniture, dining table beds etc. to make it feel like home. As you must be aware that the price of the properties mostly rise every year and as mentioned above the market value of that flat depends on the locality of that flat and the amount of money put by the owner let’s just say the owner put Rs. 5 lakh worth of content and money in the beautification of that flat. Now, the market value of that flat will become worth Rs. 15 lakhs plus taxes.

Reinstatement Value Clause

Reinstatement Value Clause defines the terms and conditions of payment of reinstatement claims under the insurance policy. It states that when the coverage terms are reset, the insured can file a claim due to previous loss. This clause does not usually reset the terms of policy, but they do allow the policy to restart the coverage for future claims.

Certain Aspects of Reinstatement Value Clause

• The insured can ensure that their coverage begins again as soon as possible by including the reinstatement clause in their policy
• The reinstatement clause specifies when the coverage can begin again after a recent loss or damage.
• The amount that the insured can recover from the insurer is set at a maximum amount called the coverage limit.

Conditions that apply to Reinstatement Value Claims

Since this is a clause under an insurance policy, certain conditions can be expected. Conditions are as follows:

• The claim amount can be changed to standard claim amount if the reinstatement of the property is not complete within 12 months of the loss or damages.
• If the value of the property at the time of loss exceeds, the sum insured under the policy, the claim will be prorated accordingly and the insured will have to bear the excess.
• The insurer can release only the standard amount unless the insured has spent money on reinstatement or replacement of damaged property.

Conclusion

Henceforth, it is best to get the insurance on market value to get the maximum claim value. It becomes important for the buyer to buy a home insurance policy after comparing with different plans so that the buyer gets the maximum claim possible.