Which valuation method pays the depreciated value of an item right before a loss?

The valuation method that pays the depreciated value of an item right before a loss is known as Actual Cash Value. This approach takes into consideration the item's current market value at the time of the loss, factoring in depreciation due to age, wear, and tear.

Actual Cash Value is significant because it reflects the realistic worth of the item in its existing condition, rather than its original purchase price or replacement cost. This method ensures that policyholders receive a fair settlement that aligns with the value of the asset just before the loss occurred.

In contrast, Stated Value generally refers to the value agreed upon in the insurance policy, which may not consider depreciation. Replacement Cost compensates the insured for the cost of replacing the item with a new one of similar kind and quality, regardless of depreciation. Guaranteed Value provides a fixed value that will be paid in the event of a loss, which also doesn’t account for depreciation. Therefore, Actual Cash Value is the appropriate choice when seeking compensation for the depreciated worth of an item just prior to an incident.