In commercial property insurance, what is usually stated for property valuation?

In commercial property insurance, actual cash value (ACV) is the standard method for valuing property at the time of a loss. This approach takes into account the replacement cost of the property minus depreciation. The idea behind using ACV is to provide a more realistic financial representation of the property's worth at the time of loss, reflecting its decreasing value over time due to wear and tear, age, and obsolescence.

This method ensures that the insured amount complies with the principle of indemnity, which aims to restore the insured to their financial position before the loss occurred without allowing them to profit from the insurance payout. By calculating ACV, insurers can offer fair compensation that corresponds to the true value of the property at the time of the loss.

Understanding this valuation approach is crucial for individuals involved in underwriting and assessing claims in commercial property insurance, as it directly influences policy limits, premiums, and the eventual payout during a claim.