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Before we start differentiating among Agreed value, Market value and Reinstatement value clauses, let us tell define what a valuation clause is.
The Valuation clause is an arrangement in some insurance policies that determines the fixed amount a policy holder could receive while settling the claim. The above mentioned values clauses are a type of Valuation clause.
Agreed value clause or Agreed amount clause is a property insurance clause. Under this clause the insurer agrees to waive the coinsurance requirement. At the starting period of the policy, the insurer and the insured agrees upon an amount that the insurer will pay out when the claim settles.
Market Value is the price an insured asset in its present state would be able to command in a competitive market setting from a willing buyer. Now, Market Value Clause makes sure that the insured gets the market value of the covered property rather than the actual cash value or the replacement value.
Therefore, Market Value Clauses assign a market rate value to the property rather than basing it on the actual or replacement cost. The amount guaranteed to the customer in the case of a loss is a fundamental element of the insurance policy.
For example: A person buys a flat worth Rs. 10 lakh which is the market value decided by the owner of that flat on the basis of the locality and the money he invested in that flat, like if the owner has installed a modular kitchen and wooden cupboards in the rooms.
Now the buyer brings in the contents like furniture, dining table beds etc. to make it feel like home. As you must be aware that the price of the properties mostly rise every year and as mentioned above the market value of that flat depends on the locality of that flat and the amount of money put by the owner let’s just say the owner put Rs. 5 lakh worth of content and money in the beautification of that flat. Now, the market value of that flat will become worth Rs. 15 lakhs plus taxes.
Reinstatement Value Clause defines the terms and conditions of payment of reinstatement claims under the insurance policy. It states that when the coverage terms are reset, the insured can file a claim due to previous loss. This clause does not usually reset the terms of policy, but they do allow the policy to restart the coverage for future claims.
Since this is a clause under an insurance policy, certain conditions can be expected. Conditions are as follows:
Henceforth, it is best to get the insurance on market value to get the maximum claim value. It becomes important for the buyer to buy a home insurance policy after comparing with different plans so that the buyer gets the maximum claim possible.