Market Value Clause

Market Value Clause:

What Is a Market Value Clause?

A market value clause in an insurance policy requires the insurer to compensate the insured based on the market price of the covered property, rather than its actual cash value or replacement value.

Key Takeaways:

– A market value clause compensates the insured based on the market price of the property, rather than its actual cash value or replacement value.

– Market value clauses typically cover property with fluctuating value, like commodities, instead of fixed assets.

– This clause establishes the amount that can be collected on an asset, setting it at the open market level, potentially including a profit for the insured.

Understanding a Market Value Clause:

Market value clauses assign a market rate value to the property, rather than its actual or replacement cost. The dollar amount guaranteed to insured parties in case of loss is a fundamental element of the insurance policy. The value can be set at the actual cash value or replacement cost, depending on the type of policy. Market value clauses commonly cover property with fluctuating value, such as commodities.

The market value clause establishes the dollar amount that can be collected on an asset, setting it at the open market level, potentially including a profit. For commodities like farm crops, the market value varies depending on the kind of crop.

For example, a farmer purchases insurance to cover their corn crops. The farmer spends $700,000 planting the corn and expects to make an overall profit of $800,000 from selling the corn, resulting in a $100,000 profit. If a heavy storm damages a portion of the crops, the insurance company will reimburse the farmer based on the $800,000 valuation, not the $700,000 valuation.

Other Insurance Clauses:

Other common insurance clauses include:

– Cooperation Clause: Requires the policyholder to assist the insurance company after a claim is filed.

– Hammer Clause: Authorizes the insurer to compel the insured party to settle a claim.

– Liberalization Clause: Allows flexibility in adjusting terms to comply with laws and regulations, often found in property insurance.