What is the Agreed Value Policy?
An Agreed Value Policy is a type of insurance policy in which the value of the insured item, such as a vehicle or property, is determined and agreed upon at the time the policy is written. This predetermined value ensures that if the insured item is declared a total loss due to damage or theft, the policyholder will receive the agreed-upon amount, regardless of the item’s market value at the time of the claim.
This type of policy is particularly useful for items that depreciate over time, such as classic cars or high-value collectibles. Unlike standard policies that might only pay out the current market value (which can be much lower), an Agreed Value Policy guarantees a fixed payout, offering the policyholder financial protection and peace of mind.
In the context of car insurance, for example, if a vehicle insured under an Agreed Value Policy is involved in a total loss accident, the policyholder receives the full agreed value rather than the car’s depreciated market value. This policy type is especially favored by owners of rare or custom vehicles whose value may not align with traditional market standards.
Agreed Value Policies can also apply to certain property insurance situations, offering clear terms and eliminating disputes about the worth of an asset after a loss.