What is an agreed value policy?

An agreed-value policy is a special kind of car insurance people get. When you get this kind of policy, you and the insurance company say how much your vehicle is worth. You both “agree” on the “value,” so it is called an “agreed value” policy.

How is agreed value different

Most regular car insurance policies use “actual cash value” or “market value” if your car gets totaled. That means the insurance company looks at your wrecked car and figures out how much it was worth before the accident. They think about how old it was and what shape it was in.

But with an agreed-value policy, you and the insurance people decide on a price for your car when you first get the policy. That is the “agreed value”. If your car gets totaled, the insurance company pays you that agreed value amount.

When agreed value can be a good idea

Agreed value policies can be good if you have a particular car, like an antique, classic, or modified car. Those types of vehicles can be complex to put a price on. Regular insurance policies might say the car is not worth much because it is old. But it is worth a lot because it is unique or rare.

With an agreed-value policy, you can ensure you get paid what the car is worth if something terrible happens. Although agreed-value insurance costs more, it can be worth it for peace of mind.

How to get an agreed value policy

If you want an agreed-value policy for your particular car, you must find an insurance company that offers it. Not all insurance companies do. You might have to look for a company that insures classic or expensive cars.

Proving your car’s value

When you apply for the policy, you must tell the insurance company everything about your car. It would be best to describe it uniquely and explain why it is worth more than a regular car. The insurance company will probably want to see some proof, like:

An appraisal from a car expert saying how much the vehicle is worth
Receipts showing how much money you spent restoring or improving the car
Photos showing the unique features of your car

The insurance company looks at all that information and decides if they agree with the value you put on the car. If they do, that becomes the “agreed value”. If they don’t agree, you might have to find a different insurance company or accept a lower agreed value.

Keeping the agreed value up to date

One crucial thing about agreed value policies is that the agreed value does not change unless you change it. Most policies require you to renew them every year. When you renew, you can change the agreed value if you think your car is worth more or less than before.

For example, if you spent a lot of money fixing up your classic car and it is in even better shape, you might want to raise the agreed value. Or if classic car prices have gone down for some reason, you might want to lower your agreed value so you aren’t paying for more insurance than you need.

The cost of agreed-value insurance

Agreed value policies usually cost more than regular car insurance. The insurance company promises to pay you a set amount if your car is totaled, even if that amount is much more than what the car would be worth on the regular used car market. They charge more to make up for that extra risk.

Factors that affect the price

How much extra you pay for an agreed value policy depends on a few things:

The agreed value amount: The more your car is worth, the more the insurance will cost.
Your driving record: If you have an excellent record of safe driving, your insurance will cost less than if you have accidents or tickets on your record.
Where you live: Insurance prices differ in different parts of the country. They can also vary depending on whether you live in a big or small city.
Your age: Younger drivers usually pay more for insurance than older drivers.

Saving money on agreed-value insurance

There are a few ways you might be able to save some money on an agreed-value policy:

Raise your deductible: The deductible is the amount you must pay before the insurance kicks in. Your monthly or yearly cost will be lower if you choose a higher deductible.
Drive carefully: Some insurance companies give “good driver” discounts. If you go for a certain number of years without an accident, you can qualify for these at a lower price.
Store your car safely: Where you keep the car can also make a difference. Keeping a classic car safe in a locked garage can get you a lower rate than parking on the street.

Even with these savings, agreed-value insurance is still usually going to cost more than regular insurance. But knowing their car is protected is worth that extra cost for some people.

Pros and cons of agreed value policies

Like most things in life, agreed-value insurance has good and bad points. Here are some of the key ones:

Pros

You know how much you will get paid if your car is totaled. There are no surprises.
You can insure your car for its actual value, not just its regular market value.
If you have a lot of money tied up in a particular car, an agreed value policy can give you peace of mind that you won’t lose all that value if something happens to the car.

Cons

Agreed value insurance costs more than regular insurance. You have to decide if the extra cost is worth it to you.
Agreed value only helps if your car is totaled. If your vehicle is damaged and cannot be fixed, the insurance company will only pay the cost of the repairs, not the whole agreed value amount.
You must reevaluate your agreed value regularly to ensure it makes sense. Car values can change over time, so the number you pick when you first get the policy might not still work years later.