What is the typical loss settlement basis for contents under a homeowners policy?

The typical loss settlement basis for contents under a homeowners policy is actual cash value. This means that in the event of a loss, the insurer will pay the current market value of the contents at the time of the loss, which takes into account depreciation. Actual cash value is calculated by determining the replacement cost of the item and then subtracting depreciation, reflecting the item's reduced value due to factors like age, wear and tear, or obsolescence.

This method of settlement is standard in many homeowners insurance policies because it provides a fair assessment of the value of personal property while also ensuring that the insurer is not obligated to replace items at their original cost, which helps keep premiums manageable for policyholders.

In contrast, replacement cost would cover the cost of replacing the damaged items with new ones, without depreciation, leading to higher payouts. Agreed value is a basis where both parties set a specific amount that will be paid in the event of a loss, typically used for unique items or properties, and involves a more customized approach. Market value refers to the price that property would sell for in the open market, which can fluctuate depending on market conditions and does not accurately reflect the specific value of the contents in a typical homeowners policy.