Valuation Clause

What Does Valuation Clause Mean?

A valuation clause is a provision in an insurance contract that specifies the exact dollar amount to be reimbursed in the event of a loss. This amount must be agreed upon by both the insurer and the insured. The premiums for the policy are paid in exchange for the insurer’s promise to reimburse the agreed-upon value as outlined in the valuation clause if a loss occurs.

Insuranceopedia Explains Valuation Clause

Valuation clause figures can be based on several factors, including replacement value, actual cash value, and agreed value. It is up to the policyholder and the insurer to decide whether to cover the full replacement value of the insured item or to consider depreciation. If the full replacement value is chosen for the valuation clause, premiums are typically higher compared to those based on actual cash value.

In auto insurance, the valuation clause often determines how much you receive after a total loss, and different insurers use different methods to calculate that number. You can learn more about this process in our guide on how insurance companies value cars. The same replacement cost versus actual cash value distinction applies to homeowners policies, where it can mean the difference between getting enough money to rebuild and falling short. Comparing how insurers handle this is worth doing when shopping for a policy, and our list of the best homeowners insurance companies can help with that.