What is the most common loss settlement valuation used in property insurance policies?

The most common loss settlement valuation used in property insurance policies is Actual Cash Value (ACV). ACV is defined as the replacement cost of the property minus depreciation. This means that when a loss occurs, the insurer determines the amount it would cost to replace the damaged property with a new item of similar kind and quality but then deducts depreciation based on the age and condition of the property at the time of the loss. This approach provides a fair value for both the insurer and the insured, balancing the need for the policyholder to receive compensation for their loss while also accounting for the decreasing value of property over time.

While Replacement Cost is another method that pays for the full cost of replacing the property without depreciation deduction, it is less commonly used as a standard valuation method across all property insurance policies. Market Value and Guaranteed Replacement Cost options are also available but are more specific and not as widely applicable or recognized as ACV in the context of general property insurance policies. By using Actual Cash Value, insurers can maintain a balance between providing coverage and managing risk effectively.