Posted in Finance, Accounting and Economics Terms, Total Reads: 388
Definition: Broad Evidence Rule
This term is used mainly in the insurance industry and states the law/rule to be followed while determining the value of lost, stolen or damaged property. It is mainly used by insurance companies to ascertain the amount that is needed to pay in case of claim made by the insurer. Broad evidence rule encapsulates the various rules and clauses that are used when determining the value of any asset when it is lost or damaged due to unavoidable circumstances.
The rules are very important, as the rule should be such that the ascertainment of the final value of the damaged or lost asset must be of sense to both the insurer and the insurance company. It should be realistic as in the value should not be too high which will make the insurance companies go bankrupt. Also it should not be too less, otherwise consumers won’t see any benefit in insuring their valuable assets.
In general, the rule that is followed by insurance companies to ascertain the cash value of any property is by following formula:
Cash Value = Replacement cost – Depreciation
The broad evidence rule in addition to the above formula also incorporates other factors related to property such as tax value, any accrued profits, the age of the property and its usage.
The broad evidence rule is used by many insurance companies because it takes into account factors such as the usage and age also along with very obvious factors to determine the cash value. An asset might be of very high value, but it might have been overused and due to which it might have been damaged and hence in that case the use of the factor called usage us really very important to know the true value that the insurer must pay in cash. This factor is not used in the traditional methods.