Agreed Value
A predetermined amount that the insurer and policyholder agree upon as the value of insured property, which will be paid in case of total loss. This amount is established when the policy is written and doesn't change based on depreciation or market fluctuations.
Example
“The classic car insurance policy included an agreed value of $45,000, ensuring the owner would receive that full amount if the vehicle was totaled.”
Memory Tip
Think 'Agreed = A Deal is Made' - both parties shake hands on the exact payout amount upfront.
Why It Matters
Agreed value coverage eliminates disputes over depreciation and market value at claim time, providing certainty about compensation for total losses. This is particularly valuable for unique items like classic cars, artwork, or antiques where determining actual value can be subjective and contentious.
Common Misconception
People often think agreed value and replacement cost are the same thing, but agreed value is a fixed amount that doesn't change, while replacement cost coverage pays whatever it actually costs to replace the item at current prices. Some also believe agreed value automatically increases over time, when it typically remains static unless specifically adjusted.
In Practice
Tom insures his 1967 Mustang with an agreed value policy for $50,000 after providing an appraisal. Three years later, when similar cars are selling for $60,000, his Mustang is stolen. He receives exactly $50,000 from the insurance company, not the current $60,000 market value, because that was the agreed-upon amount when the policy was written.
Etymology
Simple combination of 'agreed' (from Old French 'agreer' meaning 'to receive favorably') and 'value' (from Latin 'valere' meaning 'to be worth'), referring to a mutually accepted worth.
Common Misspellings
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