What defines the term "insured value"?

The term "insured value" refers specifically to the value that a policyholder designates as the basis for coverage within their insurance policy. This value is crucial as it serves as a primary factor in determining the compensation a policyholder would receive in the event of a loss or claim. By establishing an insured value, the policyholder ensures that they have adequate coverage that reflects the worth of the insured item or property at the time the policy is in effect.

This designated value can differ from other values related to the property, such as market value, which fluctuates based on current real estate trends, or depreciated value, which considers the reduction in an asset's worth over time due to wear and tear. Understanding insured value helps both the insurer and insured align on coverage expectations and obligations in the context of a claim.