Finding out at the time of a loss that your policy contains the incorrect valuation can prove to be a very costly setback for any policyholder. To prevent such an event, make sure that you are familiar with what a valuation clause does and check that you have the correct one for your insurance needs.

The valuation clause is the section of the policy that an insurance company turns to when it comes time to determine how to calculate the amount to pay in the event of a loss. There are several types of valuation clauses that can be used, depending on the item being insured. The most common types are:

Replacement Cost:

As it sounds, the replacement cost is the cost to repair or replace a building using currently available materials of the same kind and quality as those used in the original construction of the building.