A good question.
Fire insurance is as we all know a contract of indemnity i.e in case of damage or loss the insured property is restored to the nearly the same. In an ordinary policy of fire insurance the insurer is not actually reinstated the property.Once payment for loss suffered is discharged the insurer's obligations are over. It is not practical for an insurance company to make a valuation of every property which the company insures. The liability rests on insured to state the sum insured.
The method of assessment is to estimate the replacement cost in case of total or partial loss.
Thus according to me the assessment for replacement cost should be found out by making detailed estimate in accordance with the current rate and deducting depreciation considering age, repairs and such other aspects.
Yoy may also work out the salvage value as the subsequent to the insured party's payment,the insurer is entitled to the salvaged property.
Really nice one.
It depends on the type of asset insured under which fire insurance obtained.
As per my understanding:
1. Insurance company estimates the loss incurred due to fire
2. Estimate the losses as per the market value or the replacement cost method ( taking into consideration wear and tear of asset)
3. Compare the insurance coverage/Sum assured
4. The Indemnity concept applicable. If the replacement cost is greater than the Sum assured. only sum assured will be covered.
5. If the loss is less than sum assured, only to extent of loss will be covered.
All the assessment will be done by certified Assessors (Actuarial assessment)
Insured is entitled to receive any salable/salvage value of asset/property.
Thanks and regards,
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