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Agreed value insurance: What is it, and how does it work?

  • Auto Insurance
  • Renee Martin
  • 6 minutes

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Have you come across the term agreed value insurance? Do you know what it means in the world of car insurance? When you own a car, you should know about a daily driver’s agreed amount endorsement and agreed-value car insurance. Here’s all you need to know about this type of coverage and how it works

Most car insurance companies determine the cost of your car insurance policy based on the vehicle’s actual cash value. Sadly, cars start depreciating the minute you drive them off the dealer lot. That means you could face a loss if you total your car in an accident. However, with agreed-value car insurance, you will receive compensation based on the value of your car that you and the insurance company agreed to when you purchased coverage.

Agreed value insurance: What is it, and how does it work?

With an agreed-value insurance policy, you and your insurer agree on the value of your car, which is the maximum amount the insurer will pay in the event of a covered loss. If you have a claim, you have the option of receiving either the full cost of repairs or the agreed-upon value.

Insurance policies with an agreed-upon value are uncommon. Most drivers buy agreed-value car insurance for covering a classic car, an antique car, or a car projected to appreciate value rather than depreciate.

Obtaining this type of coverage differs from buying a standard actual cash value (ACV) policy or stated value coverage in a few ways. First and foremost, you’ll need to submit a statement of property value, which explains how much your car is worth and why it’s worth that much.

The premiums are typically higher than actual cash-value car insurance. Car insurance providers consider the following elements when determining the cost of this type of coverage:

  • Your car: The characteristics of your car, such as its age, make, and model, determine the cost of your agreed-value insurance.
  • Your mileage: If you plan on using your car daily, you can expect a higher premium as the chance of a claim is higher
  • Car storage: If you store your car in a garage, you may be able to obtain a lower rate than if you park it in an open driveway.

Is it right for you?

Agreed value insurance isn’t for everyone. If you want to insure a classic car, a collector car, or a customized vehicle, it may be an excellent alternative. If you can’t find your car’s value on a site like Kelley Blue Book or Edmunds, you might want to consider agreed-value insurance.

One of the most significant advantages of agreed-value insurance is the ability to obtain a higher level of coverage for your car. With agreed-value insurance, insurance companies do not take depreciation into account. This could result in a smaller payout in the event of a claim.

However, keep in mind that the premium for this type of coverage is usually higher since you are paying for a higher level of coverage. That said, agreed-value insurance could be worth it if you are entitled to a  greater settlement following a claim. 

Agreed value insurance vs. other forms of car insurance

After a loss, most auto insurance policies reimburse you based on the actual value of your vehicle or ACV. Despite the lesser payments, these insurance policies are often less expensive than agreed-value plans. 

Agreed value insurance vs. stated value car insurance

Although the terms agreed-value and stated value sound similar, they are not the same. With stated value insurance, you, the policyholder, get to decide how much your vehicle is worth. The insurance provider will check if the stated value is within a reasonable range and may request documentation. However, unlike an agreed value policy, there is no guarantee that you will receive the full stated amount if you file a claim.

Most drivers buy stated-value insurance to insure high-value antique cars, collector cars, and modified cars. Since your compensation after a claim will vary, the premiums are usually slightly less expensive than agreed-value insurance.

Agreed value insurance vs. actual cash value 

The common reimbursement method for a standard car insurance policy is actual cash value (ACV). It’s the value of your car at the time of the accident, including depreciation. When you buy a policy, your insurance provider calculates the ACV of your car based on its age, mileage, make, model, and other vehicle-specific data. While you could seek a reevaluation if you believe the vehicle is worth more, the value established by the insurer is mostly out of your control.

The most significant advantage of ACV vehicle insurance coverage is that the premiums are often the lowest. On the other hand, your payout will almost always be lower than that of an agreed-value insurance policy. An ACV policy covers most conventional vehicles, but it may not be enough if you have a classic car or antique vehicle.

How much does it cost?

The cost of agreed-value car insurance differs from person to person. The national average car insurance premium is $1,716 per year for a full coverage policy. Agreed value insurance is typically more expensive than conventional policies. However. like conventional car insurance policies, factors such as your location, claim history, and the characteristics of your car determine your premium.

Is it the same as the replacement cost value?

Your vehicle’s replacement cost value is not the same as the agreed value. A replacement cost value (RCV) coverage compensates based on the worth of the car in its original condition. It excludes depreciation and any appreciation that may have happened due to upgrades and changes. Both are frequently more expensive than a standard ACV policy.

Is gap insurance better than agreed-value insurance?

If you have a regular car that you plan to drive daily, an actual cash-value car insurance coverage would suffice. However, if your car is brand new, an agreed-value car insurance policy may provide you with peace of mind.

Cars tend to depreciate quickly. So if you have actual cash value car insurance, but your car is totaled before you can pay it off, you will not receive as much money as you owe the lender. As a result, you’ll be paying for a car that doesn’t exist anymore.

If you have an agreed value policy, you could use the payout to pay off your car. However, there is a better way to pay for a new car that was totaled – gap insurance.

GAP insurance covers the difference between the actual cash value of your car and what you owe. GAP insurance comes in handy when your car isn’t paid for in full. Some lenders may even compel you to have it.

To get the right kind of coverage for your car, determine the amount of financial protection you require. To start your search for the best car insurance policies, tap the banner above.

Read more blogs on affordable airport parking, the best insurance for your car, and top-rated car washes near you 


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