What determines the market value of a property in an insurance policy?

The market value of a property in an insurance policy is determined by actual cash value (ACV). This concept reflects the amount that an item would sell for on the open market, which takes into account depreciation. ACV is calculated by assessing the replacement cost of the property minus any depreciation that has accrued over time.

This approach ensures that the insured amount is fair and reflective of the property's true market worth at the time of loss, offering a more accurate financial protection for both the insurer and the insured. Unlike replacement cost, which refers to what it would cost to replace a damaged item without considering depreciation, actual cash value gives a realistic estimate based on the current condition of the property.

Cost of improvements and appraised value can influence the property's worth but do not directly determine the market value from an insurance standpoint. The focus in this context is on the current market conditions and actual depreciation, which align with the definition of actual cash value.