What is the basis for calculating the amount paid by a Standard Fire Policy?

The correct basis for calculating the amount paid by a Standard Fire Policy is Actual Cash Value. Actual Cash Value (ACV) is defined as the replacement cost of the property at the time of the loss minus depreciation. This valuation method reflects the current value of the insured property, taking into account factors such as age, wear and tear, and market conditions.

When a claim is filed under a Standard Fire Policy, the insurer will assess the damage to determine the cost to replace the property or its components, and then apply an appropriate depreciation factor to arrive at the actual cash value. This means that if an item is older and has more wear, the payout from the insurance may be significantly less than the cost to replace it new, reflecting the decrease in value over time.

This method of valuation is different from others like market value or reconstruction cost, which do not consider depreciation and could lead to higher or different payouts. Therefore, ACV allows insurers to provide a fair and reasonable settlement based on the actual condition and worth of the insured property at the time of the loss.