How is 'fair market value' defined in the context of insurance?

In the context of insurance, 'fair market value' is defined as the price that a willing buyer and seller agree on in an open market. This definition emphasizes the conditions where both parties have reasonable knowledge of the relevant facts and are motivated to buy or sell without any undue pressure or external influences. It reflects the true economic value of a property based on current market conditions, offering a realistic assessment that can be used for various purposes, including determining claims, underwriting, and valuations.

The other options represent different valuation methods, but they do not reflect the concept of fair market value as closely. The government appraised value may be more of an estimation used for tax purposes and might not align with market conditions. The assessed value determined by property tax regulations often diverges from actual market value since it may fluctuate based on set guidelines rather than real-time market forces. Lastly, averaging selling prices of similar properties might not account for specific conditions affecting an individual property, making it less precise than the direct negotiation between a buyer and a seller in an active market scenario.