Page 214 - Fire Insurance Ebook IC 57

Fire and Consequential Loss Insurance

(b) The sum insured under the policy for the affected item.

Meaning of value

Value may be defined as the worth of anything in terms of something
else for which it can be exchanged either in other goods or in money.

There are two kinds of value :

(a) value in use and
(b) value in exchange.

n Value in use depends upon the various benefits the owner derives
from the property by way of income, comfort, pleasure, etc.

n Value in exchange is determined by what a buyer will pay for the
property or by what it would cost to buy similar property at the
place and at the price ruling at the time (market value). This value
can be fairly easily determined as a matter of fact, if there is a
buyer and a seller.

n Insurance is concerned with the actual, real or intrinsic value of
the property.

n The term "Market Value', in insurance practice, has different
meanings in different situations but the objective in all cases is to
give effect to the principle of indemnity in a practical manner.

n The term "depreciation" refers to the reduction in the value of the
machinery due to usage, deterioration, wear and tear, rust,
corrosion, metal fatigue etc.

n The term "betterment" refers to the superior qualities of the
replaced machinery such as increased output, reduced
consumption of power, lower costs of maintenance etc.
Depreciation and betterment are two sides of the same coin.

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