What is the Loss Settlement Valuation that includes a deduction for depreciation called?

The term for Loss Settlement Valuation that includes a deduction for depreciation is known as Actual Cash Value. This concept reflects the current value of an item, taking into account its original value minus any depreciation that may have occurred over time.

In practical terms, if an insured item is damaged or destroyed, the amount the insurer would pay would be based on its current worth, factoring in wear and tear, age, and other depreciation factors. This approach contrasts with other valuation methods like Replacement Cost, which would cover the cost to replace the item with a new equivalent without considering depreciation.

Understanding Actual Cash Value is crucial in insurance claims as it directly impacts the payout amount, ensuring customers are aware that settlements may not fully cover the cost to replace their lost items in their original condition.