There's something special about owning a one-of-a-kind item. However, finding insurance for that unique, old, or high-value property can be tricky. Some belongings just don’t fit into the standard policies offered by many insurance companies. Two such examples include classic cars and expensive jewelry.
Depending on the type of policy you choose, many insurance companies agree to insure items at actual cash value, or ACV. This essentially takes the cost of the item new and factoring in depreciation. With ACV, you usually don't receive enough compensation to fully replace the item. In order to ensure full reimbursement, you may need to have your insurance work at replacement cost value, or RCV.
However, some items are harder to replace. This is where agreed value and stated value come in. With these two forms of valuation, you can insure items many standard policies simply can’t cover. While the two coverages are very different, they are often confused for one another. What’s the difference between agreed and stated value, and which one is best for you?
What is agreed value insurance?
Agreed value — sometimes referred to as “guaranteed value” — is an amount you and your insurance company agree a specified item is worth. Unlike most other coverages, if an item is covered at agreed value, you are guaranteed to receive the full amount stated in the policy in the event of a loss.
Typically, you and your insurance company will agree on the value of the item before the policy is even issued. Your items will have to be appraised, proving the value to the insurer. You will be able to find this inside your policy, which should directly state that the insurer will cover the item(s) at the “agreed value.”
With agreed value coverage, the insured value of your property doesn’t depreciate, at least not over the course of your policy term. However, you will likely have to undergo an appraisal at the beginning of each new policy term.
Along with classic or modified cars, agreed value is a popular option for jewelry. For an added premium, you can have high-value jewelry items replaced at the agreed value listed on your policy. Like other agreed value items, you are likely to have to provide a recent appraisal or bill of sale.
What is stated value insurance?
State value is commonly mistaken for agreed value, though the two vary dramatically in the extent of their coverage. Most commonly used to provide insurance coverage for classic cars, an item’s stated value is determined by the individual, not the insurance company. While you may even have to provide documentation proving such a value, your insurance company will not necessarily pay this amount in full should you suffer a loss.
You may value your classic car at $100,000 (and pay the corresponding stated value rates). However, you are not necessarily entitled to that amount should you suffer a total loss of that vehicle. An underwriter for your insurer will determine the market rate for the car and will pay out accordingly. If they find the market value to be $80,000, you could be looking at a payout substantially less than the value you stated.
Your policy will typically indicate it covers items at stated value or at actual cash value, whichever is less. In some cases, the ACV may be higher than the amount you stated. This allows you to insure an item for far less than it is actually worth, bringing your premiums way down in the process. However, should you suffer a loss you would still only get the lowest of the two amounts.
What is home market value insurance?
Market value is typically used when referring to the value of your house. Put simply, it is the amount that your home could fetch if put on the market. It figures in the cost of the land as well as nearby amenities that could make the location more or less desirable. Importantly, it is not the amount that your home would cost to replace. Replacement cost factors in the labor and materials of rebuilding the home and has little to do with how much your house could be listed for.
In most cases, the amount it costs to rebuild your house will be far less than the market value of your home. This is especially true if your home is in a more desirable part of town or located near good schools.
While many people insure their homes at replacement cost, some insurers may offer extended replacement cost, which usually extends 10% to 25% beyond your home’s replacement cost. This coverage typically costs more in annual premiums, but insuring your home for greater than replacement cost could help you combat rising labor costs or the prices of materials.
Which is better: agreed value or stated value?
Agreed value coverage may not be offered by every insurer, and it usually applies to higher-value or unique items. As such, you might need to seek out a specialty insurer — or a standard insurance company that partners with one.
If low premiums are the most important thing for you, a stated value policy could deliver. However, if you are wanting to insure your items for their full value and avoid a potentially substantial loss, agreed value coverage could be the way to go.