Agreed Value vs. Stated Value: What’s the Difference?
When you purchase a policy to protect your property against accidental loss or damage, you and your insurance company must agree on how your property will be valued. There are many ways to determine the value of damaged property at the time of the loss.
Understanding the ways property value is determined, and the method used in your policy is essential. Assuming your property will be valued a certain way could cost you thousands of dollars if the method used by your insurer differs.
Read on to learn more about the differences between agreed value and stated value insurance to decide which valuation method is best for you. The professionals at Compare.com can help you make this decision.
What Is Agreed Value Insurance?
Agreed value insurance is what it sounds like – the policyholder and insurance company agree in advance on the insured property’s value. This method is simple at the time of loss (when the accident, collision, or theft occurs). If there is a covered claim, the value is already pre-determined, so there should be no disputes overvalue or depreciation.
When Does it Make Sense to Use Agreed Value Insurance?
Agreed valuation is an excellent method to use when your property has been customized or has specialized parts added that exceed the usual market value. For example, suppose you have added special tires, lift kits, ground effects, or custom stereo equipment to your vehicle. In that case, you may wish to use the agreed value so you can explain all the modifications and their value to your insurer.
Agreed value insurance is also often used for classic or antique cars. If your vehicle has greater value than other similar cars, the agreed value is a good option. Many carriers offer agreed value insurance. Comparing rates and options online can help you find the best-agreed value policy for your needs.
What is Stated Value Insurance?
While stated value insurance is like an agreed value policy in many ways, there are some additional complexities. Stated value insurance is a policy where the maximum amount paid to the policyholder at the time of a covered loss is the amount “stated” by the insured (you) when purchasing the policy.
Actual Cash Value or Stated Value
When you purchase a stated value insurance policy, you and your carrier will agree to the maximum, or cap, that will be paid. The policy could pay either the stated value or the actual cash value in the event of a total loss or the repair costs if the vehicle is repairable.
A stated value policy will have a condition noting the carrier will pay either the stated value or the actual cash value at the time of loss, whichever is less. This means that you may not receive the full stated value in the event of a total loss.
Update Your Stated Value at Renewals
Be sure to review your policy at renewal time. Is the amount you listed as your stated value still sufficient to replace your car or truck should it suffer a loss? Market value may have changed since your last valuation – research similar vehicles to ensure your stated valuation is current and in line with market prices and update your policy if needed.
When Does it Make Sense to use Stated Value Insurance?
There are circumstances when it makes sense to use stated value insurance. Some people use it when they cannot afford to carry coverage on the full value of their car. For example, insuring your classic car at an agreed value of $250,000 would be an expensive premium payment. But insuring it for a lesser, stated value of $50,000 would be more affordable and still provide some coverage should a loss occur.
This example outlines the dangers of using stated value, as well. If your car is totalled, your settlement would be less than what it would be using the agreed value. Your settlement could also be less than you expect if your carrier pays actual cash value instead of the stated value. Be sure to understand the consequences of using stated value insurance.
What Carriers Offer Stated Value Insurance?
Many major carriers offer stated value insurance. You can easily search for this type of insurance and compare options. Some insurers that offer state value insurance are:
Which is Better?
Your situation will dictate which valuation method you should select. Using stated value insurance is a good option when you want to save money on premium costs but still have a portion of the property value covered by insurance.
Agreed value will cost you more in premium dollars. However, using this method ensures you will receive the expected amount at settlement time. There are no surprises, and the carrier will not reduce your settlement for depreciation or down to actual cash value.
If it is essential to know precisely what you would get in a total loss, the agreed value is a better option. If up-front premium cost is a greater concern, stated value is a better option.
This is complex coverage, so it may help to research your options online then talk with your agent for more information.
Other Valuation Methods
In addition to stated value and agreed value insurance, replacement cost and actual cash value are other types of valuation methods you should understand.
Replacement cost is the cost to replace or restore your insured property to its pre-damage condition.
Extended replacement cost is offered by some carriers, often on home policies. This coverage is an additional amount, often 20%, on top of the replacement cost that will be paid by the insurer if the property is kept insured at 100% of its value. Extended replacement cost is also called 100 replacement cost.
Actual Cash Value
Actual cash value – or ACV – is a valuation method that uses your property’s current value in the settlement. This means that depreciation factors in. If your property were several years old at the time of loss, your settlement would reflect those years of use.