What's the Difference?
Agreed Value vs. Stated Value Insurance
Submitted by Landon Schadel, Certified Appraiser
If you have an exotic, modified or classic car, and you are nervous about any potential insurance settlement, chances are you have good reason to be concerned. If a classic car is totaled by the insurance company, will you receive a fair value for it? Is there a way to lock in an answer of "Yes"? Fortunately, there is.
There are three different bases that an insurance company can use to value an insured auto. Let's first look at the one that almost everyone has on a typical insurance policy:
Actual Cash Value (ACV)
ACV translated means "What it's worth in cash, today (just before you crashed it)." After your accident, an insurance company adjustor will go out to the tow yard and look over your vehicle. After that, using sources of their choosing, they will look up what the typical value should be for your car, and this will be their settlement offer. They may adjust this offer if you object and have some evidence to back up your claim. Or they may not. If the disagreement is strong enough you may need to hire either a lawyer or a mediator.
If ACV is the problem, Agreed Value is the solution. If you have a classic insurance policy - from a dedicated company that only issues this sort of policy - this should be the kind of coverage you have. Instead of the above scenario with ACV, what happens instead is you and the insurance company agree on the vehicle value when you sign up - before the policy is issued and any money changes hands. In the event of a disaster, the insurance company guarantees to pay the value that the two of you agree upon before shaking hands. No ifs, ands or buts.
We said this "should" be the kind of coverage you have. You might not. To find out for sure, look in the physical damage section of your policy. Somewhere in there it will say what is going to happen if your classic car is totaled. The exact statement should be very close to this:
In the event of a total loss you will be paid the Agreed Value.
Thats it. Short and sweet. No wiggle room. Agreed Value is a simple idea and if the coverage is what it claims to be it should be written up simply in the policy.
So that's the good news. An Agreed Value guarantees you will get the protection you paid for. We're done, right? Sadly no. We have to cover one more valuation basis. This is the one that spells trouble for the consumer. It masquerades as Agreed Value but it most certainly is not.
Your typical Big Auto Insurance Company sells policies that pay out on an ACV basis. Those same Big Auto Insurance Companies have customers with collectible autos who want something better. Unfortunately, Big Auto Insurance Companies are typically not set up to handle this sort of thing properly (for reasons too complex to go into here). What winds up happening is consumers often get offered a Stated Value by the typical Big Auto Insurance Company. This is what Stated Value says about a total loss:
"In the event of a total loss you will be paid the Stated Value or the Actual Cash Value, whichever is less."
Yikes. Stated Value has an escape clause that lets the insurance company fall back to ACV... and its the default action, to boot. Chances are thats not what you had in mind when you paid extra for the Stated Value endorsement.
• Stated Value exists to decide how much premium you pay. Not how much you get paid.
• Stated Value lets you insure the car for less than what its really worth in exchange for a lower premium.
Now the Stated Value payout clause makes perfect sense. And its completely fair and reasonable. This is Stated Value done right, and its almost never going to be what you want or need. In fact, if you want to limit your recovery and manage your premiums, an Agreed Value policy for a lesser value will do the same thing, except the value you receive is guaranteed.
If you want to guarantee yourself the value you expect on your classic car, refuse to settle for anything less than an Agreed Value on a classic insurance policy.
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