Agreed Value vs. Stated Value Car Insurance Policies
Agreed value and stated value car insurance policies are the best choices for drivers in certain situations.
What’s the difference between agreed value and stated value car insurance policies? Should you choose an agreed value or stated value insurance policy?
Under an agreed value insurance policy, you and your insurer come to an agreement about what a specific item – your vehicle – is worth.
Under a stated value insurance policy, you tell your insurer how much coverage you want for a specific item. You insure your $200,000 classic car with a stated value of $50,000, for example, because you don’t want to pay for a $200,000 insurance policy.
Today, we’re explaining everything you need to know about agreed value and stated value car insurance policies.
What is an Agreed Value Car Insurance Policy?
With an agreed value car insurance policy, you and your insurer agree what your vehicle is worth. Once an item is covered at an agreed value, you are guaranteed to receive the full amount stated in the policy after a loss.
Before giving you an agreed value insurance policy, your insurer may appraise your vehicle to determine its value.
Under an agreed value insurance policy, your vehicle’s value will not depreciate. However, your insurance company may adjust the agreed value every time you renew the policy.
Agreed value is particularly popular for classic or modified cars. These vehicles have unique valuations: while most vehicles depreciate in value over time, classic cars might appreciate or maintain a stable value. You and your insurer may agree that your classic vehicle is worth $100,000, and you are guaranteed to receive that amount in the event of a loss – say, if your classic car is damaged in a serious accident or house fire.
What is a Stated Value Car Insurance Policy?
Stated value car insurance policies often get confused for agreed value, but the two vary considerably in coverage.
Under a stated value insurance policy, you dictate how much coverage you want for a specific asset.
Stated value insurance policies are particularly popular for classic cars and other specialty items. Let’s say your grandfather passes down a $200,000 classic car to you. You can’t afford to insure the entire $200,000 value of the vehicle, but you still want to drive the vehicle. You buy a stated value insurance policy for $50,000 of coverage. This policy should cover most damage to the vehicle. The full value of the vehicle isn’t covered, although you’re paying reasonable insurance premiums.
Under a stated value insurance policy, you might not be entitled to the stated value in the event of a loss. If you have a stated value of $80,000 for your vehicle, but the vehicle is only worth $50,000, then your insurer will only compensate you for the value of the vehicle. The policy will have a stipulation covering “stated value or actual cash value, whichever is less”.
Agreed Value Versus Stated Value Car Insurance
There are pros and cons to both agreed value and stated value insurance policies.
Agreed value coverage is not offered by every insurer. The insurers that do offer it will only offer it on high-value or unique items. Many major insurers do not offer agreed value coverage, for example, which means you may need to find a specialty insurer.
However, some major insurers partner with specialty insurance companies, which means you may be able to add agreed value coverage to your existing policy without much issue.
Premiums tend to be lower on stated value insurance policies.
If you want to insure a vehicle for its full value and avoid a potentially large loss, then agreed value may be the best option. With agreed value, you’re guaranteed to receive the agreed value of the vehicle in the event of a total loss.
Most stated value insurance policies give insurers the option to use the actual cash value or stated value of your vehicle, whichever is lower. Your policy might have a stated value of $50,000 for your vehicle, but if your vehicle has an actual cash value of $35,000, then you will only receive that amount in the event of a loss.
The difference between stated value and agreed value is important. Let’s say your garage burns down. Your classic car, which was worth $100,000, is destroyed.
Under an agreed value insurance policy, you receive $100,000, because that’s what you and your insurer agreed was the value of the vehicle. Under a stated value insurance policy, you might only receive $25,000, because that was the amount of coverage you stated for the vehicle, and the insurer is only obligated to pay actual cash value or stated value (whichever is lower).
Pros and Cons of Stated Value Car Insurance
Advantages and disadvantages of stated value car insurance include:
- It’s a cheaper insurance option, especially if you’re insuring a high-end vehicle that you would otherwise be unable to afford to insure
- Stated value insurance can be added to your regular car insurance policy without hassle
- Your policy may not cover 100% of the vehicle’s value
- Some drivers confuse it with agreed value insurance policies, which can leave you with significantly less compensation than you expect in the event of a claim
Pros and Cons of Agreed Value Car Insurance
Advantages and disadvantages of agreed value car insurance include:
- The full value of your vehicle can be covered
- You are guaranteed to receive the agreed value in the event of a loss
- Premiums may be more expensive
- Agreed value isn’t available through all insurers, and you may need to find a specialty insurer
Generally, stated value insurance policies are for reducing costs – not increasing coverage. You might use a stated value insurance policy to only insure a portion of your vehicle. Normal insurance for a high-end classic car could be prohibitively expensive, so you buy a stated value insurance policy that only covers a portion of the vehicle’s value.
Agreed value insurance policies, meanwhile, cover a vehicle at a specific value. Once an insurer has agreed to that value, you are guaranteed to get that value for the duration of the policy. An insurer might appraise the vehicle to verify its value.
It’s easy to confuse stated value and agreed value insurance policies, but the two policies are different – and they’re for different people in different situations.