DEFINITION of 'Valuation Clause'
A provision in certain insurance policies that specifies the amount of money that the policy holder will receive from the insurer if an insured event occurs. The valuation clause stipulates a fixed amount of money that will be paid for insured property in the event of a loss. Several types of valuation clauses can be written, including replacement cost, actual cash value, stated amount and agreed value.
BREAKING DOWN 'Valuation Clause'
An insurance policy's valuation clause is important because it determines the dollar amount that will be paid in the event of a loss. Because different types of valuation clauses can be used, policyholders should review insurance policy details to determine if adequate coverage is in place.
Valuation clauses can be based on:
Replacement cost: the cost to repair or replace property using the same level of quality as in the original property.
Actual cash value: the cost of repairing or replacing the property, minus any depreciation.
Stated amount: the maximum value of an insured item.
Agreed value: a fair market value to which to insurer and insured agree.