What valuation method is synonymous with fair market value?

The valuation method that is synonymous with fair market value is Actual Cash Value. This is because actual cash value is typically defined as the replacement cost of an item minus depreciation, which reflects the current market value. Fair market value represents what a willing buyer would pay a willing seller for an item, which aligns closely with how actual cash value is calculated.

Using actual cash value in insurance claims allows for more accurate reimbursement based on the item's current worth in the marketplace, rather than the original purchase price or the replacement cost. This concept is crucial for adjusters in determining how much compensation a policyholder is entitled to after a loss.

In contrast, replacement cost refers to the cost to replace an asset without deducting for depreciation, which may not accurately represent the fair market value. Stated amount is a valuation method where the insured specifies a value for the property at the time of policy issuance, which may not reflect fair market value. Agreed value is a predetermined value agreed upon by both the insurer and insured, often used for unique items, which again does not directly imply fair market value as it is based on a mutual agreement rather than current market conditions.