Agreed Value Basis Under Home Insurance

What does the Agreed Value Clause imply?

Agreed value basis is a clause related to home insurance. The purpose of insurance policies is to provide the insured an indemnity against monetary losses. By availing an insurance plan, a policyholder can manage to be in the same financial position which he/she was, prior to a misfortune.

In all probability, your home is your most significant and treasured asset. A catastrophic natural calamity can render your den in an unlivable state. In another instance, your property might incur major damage due to a burglary or a housebreak. With home insurance, you can stay covered from such financial burns.

Clauses of home insurance

The coverage amount provided under home insurance is subject to terms and conditions. Usually, the coverage limit for a home insurance policy is a capped one which depends on the inclusions and clauses like coinsurance.

Coinsurance is the amount that an insured homeowner has to pay against a claim, in case the sum insured does not cover the loss. It is expressed as a percentage amount of the value of the insured property. The coinsurance clause is incorporated for the policyholders to buy adequate coverage. In case, a policyholder underinsures his/her home, following the provision of coinsurance, he/she has to pay a portion of the loss.

Agreed value basis

Agreed value basis, another home insurance clause, suspends the viability of coinsurance clause. Under this clause, at the beginning of the policy period, the insured and the insurer agree upon an amount that the insurer will pay out in case there is a coverage claim.

The agreed value is based on the saleable value of the insured property. Note that the saleable value and replacement cost are not the same. Saleable value at a given point is calculated by deducting depreciation from replacement cost.

To include the clause of agreed value basis, the policyholder will have to present a signed statement of property values to the insurer. The insured cannot contest or alter the coverage amount, which is agreed upon by both insured and the insurer based on the value of the property.

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