Which valuation method does homeowner insurance typically disregard when settling losses?

Homeowner insurance typically disregards market value when settling losses because this method considers the price that a property would sell for in the current market. However, insurance policies focus on compensating policyholders for the cost to repair or replace damaged property, rather than the market value, which can be influenced by various external factors such as buyer demand and local real estate trends.

By prioritizing replacement cost or actual cash value, insurers ensure that policyholders receive an amount that reflects the cost of rebuilding or the value of the property after depreciation. This approach aligns more closely with the purpose of homeowner insurance, which is to provide financial protection against loss or damage to the insured property, rather than assessments based on fluctuating market conditions. Agreed value is also not commonly used in homeowner insurance as it is more prevalent in fine art or unique items, where a specific value has been pre-determined by both parties.