What is a declared value in insurance?

The concept of a declared value in insurance is specifically tied to the amount the policyholder asserts as the worth of an item when acquiring coverage. This declaration is made at the time of purchasing the insurance policy and establishes the basis for coverage limits.

When an insured declares a value, it provides both the insurer and the insured with a clear understanding of the value that is insured. This figure influences the premium the policyholder will pay and the coverage the insurer must provide in case of a loss. The declared value acts as a commitment from the policyholder regarding what they believe the item's worth is, facilitating a smooth claims process in the event of damage or loss.

Understanding this definition is essential because it distinguishes the declared value from other concepts such as market value or depreciation, which involve different assessments and calculations that could change over time. In this context, focusing on the policyholder's declaration highlights the proactive role they take in determining the coverage they feel is appropriate for their assets.