How are "loss settlements" typically categorized in insurance?

Loss settlements in insurance are typically categorized as "actual cash value." This term refers to the method used to determine the value of a damaged or stolen property at the time of the loss. It takes into consideration the replacement cost of the property minus depreciation, reflecting both the current market value and the reduction in value over time due to wear and tear, age, or obsolescence.

This approach provides a practical means for insurers to assess claims fairly, ensuring that policyholders receive compensation that reflects the value of their loss without rewarding them excessively. Actual cash value is widely recognized and utilized within various types of insurance policies, including homeowners and auto insurance.

Other methods such as fair market value, average replacement cost, and debt valuation have specific contexts and applications. Fair market value usually pertains to what a willing buyer would pay a willing seller in an open market, which may not capture depreciation as directly as actual cash value. Average replacement cost refers to the cost to replace an asset with another of similar kind and quality and may not account for depreciation. Debt valuation typically relates to assessing a company’s debts rather than property loss assessments in insurance contexts.