Insurable value mean the value of the insured object. Even if the insurable value and the sum insured were equal when the policy was issued, they are not necessarily equal later; the insurable value may have changed because of inflation, wear and tear, etc. The insurable value is the maximum amount for which the interest may be insured, is the value that the subject-matter insured has at the time of loss. The insured value, being the amount for which the interest is insured, is such portion for which insurance is taken: as a consequence the assured can cover his interest wholly or in part. If the insurance is for of the insurable value as determined in accordance with the above rule, the insurer, shall pay such part of the loss as the insured value bears to the insurable value of the subject-mater insured at the date of the loss
Calculation of the insurable value
When an insurance claim occurs, one typically calculates both the costs incurred by the claim and the insurable value immediately before the claim event. There are various principles for the calculation of the insurable value. For most insurance forms one applies the day value, that is, the price of a new similar object with reduction for age, wear and tear, reduce applicability, or other conditions. By the replacement value we mean the price of a new similar object with reduction for reduced applicability and other conditions, but not age and wear and tear. The replacement value is sometimes used when the difference between it and the day value is small.
Example of insurable value
Example of marine insurance. Subject to any express provision or valuation in the policy, the insurable value of the subject matter insured must be ascertained as follows :
- In insurance on ship, the insurable value is the value, at the commencement of the risk, of the ship, including her outfit, provisions and stores for the officers and crew, money advanced for seamen's wages, and other disbursements (if any) incurred to make the ship fit for the voyage or adventure contemplated by the policy, plus the charges of insurance upon the whole. The insurable value, in the case of steamship, includes also the machinery, boilers, coals and engine stores if owned by the assured and in the case of a ship engaged in a special trade.
- In insurance on freight, whether paid in advance or otherwise, the insurable value is the gross amount of the freight at the risk of the assured, plus the charges of insurance.
- In insurance on goods or merchandise, the insurable value is the prime cost of the property insured, plus the expenses of and incidental to shipping and the charges of insurance upon the whole.
- In insurance on any other subject-matter, the insurable value is the amount at the risk of the assured when the policy attaches, plus the charges of insurance.
- B. Soyer 2006, p.10
- J. Dunt 2013, p.264
- B. Soyer 2006, p.10
- B. Sundt 1999, p.235
- Bugra A., Merkin R., (2014). Marine Insurance Legislation, Taylor & Francis, Southampton.
- Dunt J., (2013). International Cargo Insurance, CRC Press, Auckland.
- Soyer B., (2006). Warranties in Marine Insurance, Psychology Press, Swansea.
- Sundt B., (1999). An Introduction to Non-Life Insurance Mathematics, VVW GmbH, Mannheim.
Author: Paulina Czarnota