Generally, there are two methods. One is Market Value (MV) and the other is Reinstatement Value (RIV).
- Market Value Method (MV) - In the event of a loss, depreciation is levied on the asset depending on its age. Under this method, the insured is not paid amount sufficient to buy the replacement.
- Reinstatement Value Method (RIV) – here the Insurance Co. will pay the cost of replacement subject to ceiling of the overall Sum Insured. Under this method, no depreciation is levied. One condition is that the damaged asset should be repaired / replaced in order to get the claim. It may be noted that RIV method is allowed only for FIXED ASSETS and not for other assets like stocks and stocks in process.