With a typical personal auto insurance policy if your car is determined a total loss than the settlement amount is based on the actual cash value (ACV) of the vehicle.
The ways in which insurance companies determine the actual cash value of a vehicle vary in their methods. In general ACV is determined is by using blue book and NADA guide values and comparing your vehicle to local sales of the same model car in similar condition and with similar mileage. If however you have a specialty vehicle or an antique, classic car, or a refurbished model vehicle than these methods usually cannot be used to determine actual cash value so in these instances the policyholder for the vehicle would need to have a stated or agreed amount.
ACV coverage is what insures most everyday cars and pays out a depreciated book value in the event of a claim; the older a car is on an ACV policy, the less value it has normally. The insurance company claims adjuster ultimately decides what your car is worth at the time of the loss. If you do not agree with the claims settlement, you may have no alternative but to seek legal action, or, if specified in the policy, arbitration.
So instead of an ACV for a car you can get a policy with a "stated value", "agreed value" or "stated amount."These types of policies differ slightly but generally the insurance company and the vehicle owner discuss the true value of the vehicle so that it is covered up to that dollar amount in the policy.
A Stated Amount policy normally states the insurance company will pay the lesser of:
- The Stated Amount or
- The cost to repair the covered auto not to exceed the "Stated Amount" or
- The "Actual Cash Value
An Agreed Amount policy on a classic car usually states the insurance company will pay you, the lesser of:
- The "Agreed Amount," or
- The cost to repair the covered auto, not to exceed the "Agreed Amount".
With an Agreed Amount policy you and your agent must agree together upon the agreed amount before the policy is issued. This agreed amount should represent the true market value of the car at the time the policy is written. If the market value changes during the policy period, the "Agreed Amount" can be changed by endorsement.
The purpose for a stated amount or agreed value policy, so you can get indemnified (protect against loss or damage) for the stated/agreed upon value. Agreed value policies do not depreciate the vehicle value in the event of a total loss like a policy paying out ACV would do.
If you are getting a car insurance policy with an agreed amount for your comprehensive coverage than your premium in part will be based upon that. Because these types of insurance are different than a regular run of the mill personal auto insurance policy make sure to read and understand the policy you choose to make sure it is right for your needs. Insurance companies' policies terms and guidelines vary so if you have questions about your agreed value portion of your policy speak to your agent and seek clarification.