Agreed Value Car Insurance: Explained Simply

If you don’t have an agreed value when insuring your vehicle, your car insurance will be based on the actual cash value. Since cars depreciate quickly, this can mean a loss on your part if your car becomes totaled. (For more information, read our “Compare Best Car Insurance Companies That Offer Agreed Value“).

Depending on the age and model of your car, an agreed value car insurance policy may be the most economical choice for you.

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When Agreed Value Car Insurance Policies Matter

The difference between an actual cash value car insurance policy and an agreed value car insurance policy matters mainly when your car is considered a total loss.

If your car is totaled in an accident or is unrecoverable after a theft, then your car insurance will pay out the benefit as stated in the policy.

With an actual cash value policy, you will receive a settlement that is equivalent to the Blue Book value of your car, which takes depreciation into consideration. The price will be based on the overall condition of your car and the mileage on it at the time it was totaled.

In order to get the actual cash value price, the claims adjuster may look at other factors in addition to the Blue Book price. He may also use the NADA Guide, which is the produced by the National Automobile Dealers Association.

Another possible consideration is the comparison price of your car to what local dealers are selling similar vehicles for.

While this method does have a fair sense of value, it may not pertain to your car. Perhaps your car is driven very little and kept in the garage at all times. You keep your car regularly maintained and detailed; therefore, your car is worth much more than the actual cash value.

If your car is worth more than the actual cash value, then you will take a loss on your car insurance benefit unless you have an agreed value car insurance policy.

With an agreed value car insurance policy, your car insurance company will pay out the benefit as was agreed on your car insurance policy.

This way you will receive the full monetary value of your car whether there is depreciation or not.

The Caveat of Agreed Value Car Insurance

Before you think you should always get an agreed value car insurance policy, you need to realize the caveat of it.

The agreed value must be decided upon at the time the policy is purchased.

Since an agreed value policy only applies if your car gets totaled, it is hard to know how much your car will be worth at this future unpredictable time. Therefore, you and your agent will need to discuss various scenarios to determine the best cost to agree upon.

If your car is insured for a much higher amount than its value at the time of an accident, then you gain a bigger benefit when it is totaled.

However, an agreed value car insurance policy is more expensive than an actual cash value policy, so if your car never gets totaled and continues depreciating, then you have purchased more insurance than you need.

The people who benefit most from an agreed value car insurance policy are car owners with cars that don’t depreciate as quickly as regular cars. This typically applies to collector car policies, antique car insurance, and show car insurance.

If you have a car that appreciates in value or maintains its value, then an agreed value car insurance policy makes financial sense to protect your investment.

Using GAP Instead of an Agreed Value Car Insurance Policy

If you have a regular car that you are going to use on a regular basis, then an actual cash value car insurance policy is probably fine for your needs.

If your car is brand new, however, then having an agreed value car insurance policy may buy you peace of mind during the first few years of your car’s life while you are still making car payments.

With an actual cash policy, if your car is totaled before it is paid off, you will not receive as much money as you still owe since cars depreciate quickly. Thus you will be making car payments on a car that no longer exists.

If you have an agreed value auto policy, you may receive enough payment from your policy to pay off your car, depending on the value that was agreed upon initially.

However, there is another solution to paying off a new car that gets totaled.

Instead of buying an agreed value car insurance policy for a car that is going to depreciate, you can buy a standard actual cash value policy and supplement it with a Guaranteed Auto Protection (GAP) insurance policy.

GAP insurance pays the difference between what is covered by your actual cash value car insurance policy and what you actually still owe on your car.

GAP insurance is beneficial coverage anytime your car is not yet paid in full, and certain lenders may even require you purchase that type of coverage.

Deciding on what kind of car insurance policy to buy depends greatly on what kind of car you are insuring and how much financial protection you need to cover your asset.

If your car does not depreciate in value, then an agreed value car insurance policy is essential.

Use our FREE tool to get insurance quotes right now to make sure you have the right policy in place for your needs!

Case Studies: Agreed Value Car Insurance

Case Study 1: John’s Classic Car

John owns a vintage 1965 Mustang, which he considers a prized possession. He decided to insure his car with an agreed value car insurance policy. Last month, John’s car was involved in a serious accident, resulting in extensive damage.

The insurance company assessed the situation and paid out the pre-agreed amount specified in his policy. Thanks to the agreed value car insurance, John received the full monetary value of his beloved Mustang, allowing him to repair or replace it without suffering a loss.

Case Study 2: Sarah’s Show Car

Sarah is an avid car enthusiast who participates in car shows with her customized sports car. To protect her investment, she opted for an agreed value car insurance policy. Recently, her car was stolen and later recovered with significant damage.

Since Sarah had an agreed value policy, her insurance company reimbursed her for the agreed-upon value of the car. This ensured that Sarah could restore her show car to its original condition without financial setbacks.

Case Study 3: Michael’s Antique Car

Michael is the proud owner of a beautifully restored antique car from the early 1900s. He decided to insure his valuable antique with an agreed value car insurance policy. Unfortunately, his car was destroyed in a fire at his garage.

Despite the loss, Michael received the agreed-upon value from his insurance company. This allowed him to recoup his investment and consider purchasing another antique car in the future.