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FAQ: What is fair market value?

February 16, 2007 by Jonathan Stein

Q: What is fair market value? How does it differ from the depreciated amount?

A: Fair market value is the cost to replace the item in its pre-loss condition. So, if the item is a 4 year old 40″ tv, then you can determine the fair market value.

Depreciation is technically an accounting term. It refers to a reduced value of an item. So, some people will say that a tv, for example, has a useful life of 5 years. Therefore, the tv loses 20% of its value every year.

Ultimately, the fair market value should also be the depreciated amount as California does not allow an insurance company to use set depreciation schedules. However, they are two different concepts. Make sure that the insurance company is not just depreciating your items, but giving you fair market value!

Categories: Claims, Homeowners Insurance, Insurance and Claims FAQ

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