For loss settlement purposes, how do most homeowners policies pay for damages to personal property?

Most homeowners policies typically pay for damages to personal property at actual cash value. Actual cash value, or ACV, is defined as the replacement cost of the item minus depreciation. This means that when a claim is made for damaged or lost personal property, the insurance company assesses what the item would have been worth at the time of the loss after deducting depreciation factors such as age, wear, and condition.

This approach is commonly applied in homeowners policies as it helps to ensure that policyholders receive a settlement that reflects the item's value rather than its replacement cost or the price it might have fetched in a real estate transaction. Thus, policyholders understand that while they will not receive the full cost to replace their item with a new one, they are compensated based on its current value.

In contrast, other methods such as replacement cost would provide the full amount needed to replace the item with a new, similar item without deduction for depreciation. Market value would reflect the price that the property would likely sell for in the open market, which can differ quite significantly from its replacement cost or actual cash value. Pro rata payments refer to distributing costs or claims based on proportionality, which does not typically apply in this context of personal property loss settlement.