Fair value
Insurance is not rocket science. We explain everything you need to know about fair value in this glossary article.
What does fair value (Zeitwert) mean?
The fair value is the value of an object at a certain point in time after its purchase. For almost all items, this value decreases over time due to wear and tear. For example, your mobile phone is worth less today than when you bought it. The fair value plays a role in property and liability insurance.
Replacement value (Neuwert) and fair value – what is the difference?
Whether it’s a mobile phone, a car or a piece of furniture – if someone damages your property and you can no longer use it as a result, you’ll need to replace it.
The replacement value is the amount you would have to pay to buy an equivalent item at the time of the damage. The original purchase price is irrelevant. In the event of an insurance claim, this is referred to as replacement value compensation.
In the case of fair value, the insurer does not reimburse you for the amount your item cost at the time of purchase. Instead, the insurer pays you the costs that correspond to the value of the object at the time of the damage.
An example: Your friend hands you her mobile phone so you can take a photo – but the device slips through your fingers and breaks. In this case, your liability insurance will step in and pay you the fair value so that you can pay for the damage:
- Your girlfriend bought the mobile phone 2 years ago for €700.
- Today, the fair value of the device is €233.
- Your insurance company pays you €233, which you give to your girlfriend as compensation.
How is fair value calculated?
The fair value is lower than the replacement value of an item when it was bought. However, the replacement value must be known for the calculation. This is because the insurer deducts the depreciation, i.e. age, usage, wear and tear, from this value.
The fair value is calculated with this formula:
Fair value = replacement value - depreciation
Even if the fair value decreases with time, it always remains positive. Insurance companies regulate how high the loss in value turns out to be with percentage lump-sum deductions, since individual case decisions would mean a considerably higher effort.
If the repair is more expensive than the fair value, this is known as an economic total loss. In this case, you only get the fair value.
Does your liability insurance pay the replacement value or the fair value?
Your liability insurance will cover you if you accidentally damage someone else’s property. In the case of property damage, your insurer will usually pay for the fair value of the damaged object, not the replacement value. They take into account the age, usage and wear and tear at the time of the damage. This means that your liability insurance will not pay out the amount needed to buy an equivalent object, but only the amount the object was worth at the time of the damage.
It is also important to consider the normal service life attributed to an item. If the general useful life has been exceeded, only a residual value equal to the value of the material costs can be paid out. For example, if you damage a sofa that is 11 years old, but its normal life span is only 10 years according to the legal basis, only the residual value will be paid out.
In some tariffs, however, your insurer will pay you compensation for the replacement value. If the date of purchase was no longer than one year ago, the fair value corresponds to the replacement value. You must always have the receipt or an invoice at hand as proof. Electronic devices, cameras and glasses are excluded from this replacement value regulation.
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