What is the loss valuation method in which the insurer and insured agree on the insurance limit?

The agreed value method is a loss valuation approach where both the insurer and the insured establish a predetermined value for the insured property at the policy's inception. This means that, in the event of a covered loss, the insurer will pay the agreed-upon amount regardless of the current market value or replacement cost. This method is particularly beneficial for unique items or properties that may not have a readily available market value or for which it is difficult to assess a fluctuating value over time.

Using the agreed value method provides clarity and security for both parties. The insured knows exactly what amount will be paid in case of loss, eliminating disputes over valuation at the time a claim is made. This is essential for items that may appreciate or depreciate in value, as it neutralizes potential disagreements regarding current market conditions.

In contrast, other methods like market value, valued policy, and replacement cost involve different considerations. Market value assesses current prices, which can fluctuate significantly. A valued policy pays a set amount agreed upon at the policy's start but may not necessarily account for the specific circumstances of an individual claim. Replacement cost focuses on the expense incurred to replace the damaged property with similar materials without factoring in depreciation.

Choosing the agreed value method reinforces mutual understanding and contract stability between the