Fair Market Value

What Does Fair Market Value Mean?

Fair market value refers to the price of a product or property when all parties involved are neither pressured to buy nor sell and are provided sufficient time to reach a mutually agreeable transaction. It also serves as the basis for taxation and court evaluations.

Insuranceopedia Explains Fair Market Value

The fair market value of insurance can be determined by comparing similar policies offering nearly identical benefits from different companies. By summing up the prices of these policies and dividing the total by the number of policies, the resulting average represents the fair market value. This same comparison method is useful when shopping for coverage; pulling quotes from the best homeowners insurance companies and averaging them gives a realistic sense of what comparable policies cost.

For property, the fair market value can serve as a basis for several purposes: determining the appropriate amount of property insurance to purchase (from the insured’s perspective) and calculating the claim amount to be paid (from the insurer’s perspective). When a car is involved, insurers usually settle total-loss claims at fair market value, which is why it helps to know how insurance companies value cars before filing.