Stated Value Auto Insurance: How Does It Work?

Stated value auto insurance is a type of coverage where the policyholder determines the value of their vehicle and provides this to their insurer. The policyholder may have to provide documentation to support their valuation. The stated value is the price the policyholder would ask a buyer to pay for the car if they were selling it that day. This type of insurance is commonly used for classic cars, which may not have a commonly set value or are hard to assess. The benefit of stated value insurance is that it can lower premiums, but the disadvantage is that the insurance company may not pay out the full stated value in the event of a total loss. Instead, the insurer will pay out the lower of the stated value or the actual cash value of the vehicle.

Stated value vs actual cash value

When it comes to auto insurance, understanding the terms of your policy is crucial. The valuation method used can significantly affect your coverage and compensation following an incident. The most common valuation types are Actual Cash Value (ACV), Stated Value, and Agreed Value. Each type has distinct characteristics and applications, suitable for different types of vehicles and owner needs.

Actual Cash Value (ACV)

ACV is the most frequently used method of valuation in auto insurance policies. Under ACV, the insurer compensates you based on the depreciated value of your vehicle at the time of the accident or loss. Depreciation is a key factor because most vehicles lose value over time due to wear and tear. For example, if you bought a car for $20,000 five years ago, its value today would be less due to depreciation. The ACV is practical and widely applicable as it considers the real-world value of your vehicle. However, it can sometimes result in payouts that may not cover the cost of a comparable replacement vehicle, especially if the car is older but well-maintained.

Stated Value

Stated Value coverage is often used for vehicles where the worth might exceed typical depreciated values, such as motorcycles, boats, and RVs. With this policy, you state the value of your vehicle when obtaining insurance, and this stated value is the maximum amount the insurer will consider in the event of a claim. It's important to note that having a stated value does not guarantee that you will receive this amount in a claim. The insurer will adjust the payout based on the ACV of the vehicle at the time of the loss, not exceeding the stated value. For instance, if you claim a boat is worth $50,000, and it gets damaged, the payout will not surpass $50,000 but will be adjusted for depreciation.

Stated Value vs. Actual Cash Value

The main difference between Stated Value and Actual Cash Value is that with Stated Value, you can insure your vehicle for more or less than its actual cash value. This allows you to customise your insurance to reflect your vehicle's unique characteristics and any upgrades you've made. However, in the event of a claim, the insurer will pay out whichever amount is lower between the stated value and the ACV. This means that if you overvalue your vehicle, you may end up paying higher premiums without getting the expected coverage. On the other hand, if you undervalue your vehicle, you may not receive enough compensation to cover the full replacement cost. Therefore, it's crucial to accurately assess your vehicle's worth when determining the stated amount.

Agreed Value

Agreed Value policies are particularly beneficial for owners of classic or collector cars that maintain or increase in value over time. Unlike ACV or Stated Value, the Agreed Value is a pre-determined amount that the insurer and the vehicle owner agree upon before the policy is issued. This value does not depreciate, and the insured is guaranteed to receive the full amount stated in the policy in the event of a loss. Agreed Value policies are often found in policies offered by specialty insurers and are typically more expensive. However, they provide greater peace of mind and ensure that there is no dispute over the vehicle's value post-incident.

Stated Value vs. Agreed Value

While Stated Value and Agreed Value are often confused, they differ significantly in their coverage. With Stated Value, you may value your vehicle at a certain amount and pay the corresponding rates, but you are not necessarily entitled to that amount in the event of a total loss. The insurer will determine the market rate for the vehicle and pay out accordingly, which may result in a payout less than the stated value. On the other hand, Agreed Value guarantees that you will receive the agreed-upon amount in the event of a claim. Agreed Value is ideal for insuring unique or high-value items where the owner wants to protect the full value of their property.

Pros and cons of stated value insurance

Stated value insurance is a type of coverage where the policyholder tells the insurer how much coverage they want for a specific item. This type of insurance is often used for classic cars or other specialty items. For example, if you have a classic car worth $200,000, you can choose to insure it for a lower amount, such as $50,000, to reduce your premiums.

Pros

• It is a cheaper auto insurance option, especially for high-end vehicles that would otherwise be unaffordable to insure.
• Stated value insurance can be added to your regular car insurance policy without any hassle.

Cons

• It can be confused with agreed value insurance policies, which can lead to significantly lower compensation than expected in the event of a claim.
• The insurer might not cover the full value of the vehicle. They will only cover the agreed-upon price, which may be lower than the actual value of the item.

Agreed Value Insurance

Agreed value insurance, on the other hand, is when the policyholder and the insurer agree on the value of a covered item before the policy is issued. This value is guaranteed to be insured for that fixed amount in the event of a claim. Agreed value insurance is commonly used for expensive, modified, or classic vehicles.

Pros of Agreed Value Insurance

• The full value of the vehicle can be covered.
• You are guaranteed to receive the agreed-upon value in the event of a loss.

Cons of Agreed Value Insurance

• Premiums may be more expensive.
• Agreed value insurance is not available from all insurers, and you may need to find a specialty insurer.

How to determine a stated amount

Stated value auto insurance is a type of insurance where the policyholder determines the value of their vehicle. This value is the maximum amount the insurer will pay in the event of a claim. It is important to note that the insurer will adjust the payout based on the actual cash value (ACV) of the vehicle at the time of the loss, not exceeding the stated value.

When determining a stated amount, it is crucial to consider the vehicle's condition, mileage, any special equipment or modifications, and any major component rebuilds. Here are some detailed steps to help you determine a stated amount:

• Consult specialised publications: Refer to publications that specialise in valuing vehicles, such as Price Digests or Truck Paper. These sources will provide you with valuable information about the current market values of vehicles, helping you determine an accurate stated amount.
• Seek assistance from dealerships, manufacturers, or financial institutions: These entities have expertise in vehicle valuation and can guide you in calculating the stated amount. They can consider factors such as the vehicle's age, condition, and any modifications you've made.
• Evaluate the vehicle's condition and mileage: Take into account the overall condition of your vehicle, including any wear and tear, previous accidents, or mechanical issues. Mileage is also a significant factor, as higher mileage typically results in lower values.
• Consider special equipment or modifications: If you've added any special equipment, customisations, or modifications to your vehicle, be sure to include their value in the stated amount. This could include aftermarket parts, performance enhancements, or luxury features.
• Account for major component rebuilds: If you've had any major components rebuilt or replaced, such as the engine or transmission, this can increase the value of your vehicle. Provide documentation or receipts for these repairs to support your stated amount.
• Compare with similar vehicles: Research the market values of similar vehicles in your area. Consider factors such as make, model, year, and any additional features to find comparable vehicles and determine a reasonable stated amount.
• Get a professional appraisal: Consider hiring a professional appraiser to assess your vehicle's value. They will consider all the relevant factors and provide you with a detailed report, which can help support your stated amount.

Remember, it is essential to be as accurate as possible when determining your stated amount. Overvaluing your vehicle may result in higher premiums without the expected coverage, while undervaluing it may lead to insufficient compensation in the event of a total loss.

Stated value insurance for classic cars

Stated value insurance is a form of coverage that reflects the amount that is "stated" at the beginning of the policy. With stated value insurance, you tell the insurer what your car is worth, and it is insured for that amount. However, the insurance company is only obliged to pay out the stated value or the actual cash value, whichever is less favourable to the customer.

Stated value insurance is commonly used to provide coverage for classic cars. The stated value of an item is determined by the individual, who may have to provide documentation to prove this value. However, the insurance company will not necessarily pay out this full amount in the event of a total loss. An underwriter for the insurer will determine the market rate for the car and pay out accordingly. For example, if you value your classic car at $100,000, an underwriter may find the market value to be $80,000, resulting in a lower payout.

Classic cars are often considered stable investments that appreciate over time. Therefore, it is important to ensure that your classic car is adequately insured to cover its value. Stated value insurance policies may not always provide this level of coverage, as they can pay out less than the stated value.

An alternative to stated value insurance is agreed value insurance. With this type of coverage, the insurance company will pay out the full agreed-upon value in the event of a total loss. Agreed value coverage is based on the proven value of your car, as determined by appraisals, photos, or other relevant documentation. While agreed value insurance typically comes with higher premiums, it provides greater peace of mind and ensures that you receive the full value of your classic car in the event of a claim.

Stated value insurance for commercial vehicles

Stated value insurance, also known as stated amount insurance, is a type of insurance policy that allows owners to come to an agreement with an insurance company about the value of their vehicle. It is often used for unique or commercial vehicles with special modifications, such as refrigeration systems or plows.

When taking out a stated value insurance policy for a commercial vehicle, the owner determines the value of their vehicle, which then becomes the limit of insurance in the Stated Amount Endorsement. This value is typically the price the owner would ask a buyer to pay if they sold the vehicle on that day. It is important to accurately assess the commercial vehicle's worth to avoid surprises in coverage later. Undervaluing a vehicle may result in insufficient funds to cover a full replacement in the event of a total loss, while overvaluing may lead to higher premiums without the expected coverage.

To determine a fair stated amount, it is recommended to consult publications that specialize in valuing vehicles or seek assistance from dealerships, manufacturers, or financial institutions. Various factors should be considered, including the vehicle's condition, mileage, any special equipment or upgrades, and engine or major component rebuilds.

Unlike agreed value insurance, where the insurer and owner agree on a fixed value, stated value insurance covers the lower amount between the agreed value and the actual cash value (ACV) at the time of a claim. The ACV is the cost to replace the vehicle, also known as the market value. This distinction is important to understand, as it can impact the payout received in the event of a claim.

Frequently asked questions