08 Jun Stated Value Versus Agreed Value – Aren’t They the Same?
Typically, the valuation of an auto is based on its value after a total loss. Thus, after an accident where the vehicle is determined to be a total loss, the insurance company will reimburse the policyholder for the vehicle’s value. There are three different methods for determining the vehicle’s value. Those are:
- Actual Cash Value: The vehicle’s value just seconds before the time of the accident.
- Agreed Value: The vehicle’s value based on an agreement between the insurance company and the policyholder.
- Stated Value: The vehicle’s value based on a statement the policyholder made to the insurance company.
Stated value insurance is the type of insurance coverage most often found when insuring classic cars, with most carriers offering stated value on their physical damage coverage. Stated value determines how the insurance company rates the vehicle. It is important to note that stated value is also the provision used by an insurance company when insuring other items such as watercraft.
So, back to the fundamental question – is stated value and agreed value essentially the same thing?
Stated value is definitely not the same as agreed value. The difference between the two is probably one of the biggest misunderstandings in the insurance world. So, you ask – which one is better? Let’s take a look.
In most policies where the physical damage is written on a stated value basis, the traditional definition of stated value is:
“In the event of a total loss, we will pay the stated value or the actual cash value, whichever is less.”
Note the term “less.” The term “less” essentially allows the carrier to adjust the loss on an actual cash value basis.
To get the protection desired, the better approach is to secure coverage on an agreed value basis. How does that work? It is often referred to as “short and sweet.” First, the carrier and the insured reach an agreement on the item’s value (car, boat, etc.). Then, if the insured item is damaged or destroyed, the insurance company pays out the agreed-upon value. No more, no less. To secure this level of valuation, it may be necessary to utilize specialty carriers that provide a more customized product offering. This is often one of the areas where the coverage form is better.