In general, there are three different settlement options to choose when insuring your vehicle. These are Actual Cash Value, Stated Amount and Agreed Value. Today we’ll take a look at these three different coverage types and how they will affect you at the time of loss. If your vehicle is in an accident and needs repaired, all three coverages will essentially pay you the same way. They will pay full price for labor and parts but will take depreciation on wearable parts such as tires, brake pads, etc. The main difference comes when your vehicle is declared a total loss. Some companies do offer endorsements that will only allow Original Equipment Manufacturer (OEM) parts to be used in a repair for an additional charge.
Actual Cash Value will pay you what the vehicle is worth at the time of loss. Many carriers use a system that combines an industry standard valuation system, such as NADA, and actual sales for the same or similar cars with similar mileage within a reasonable distance from where you live. You can purchase endorsements that will buy you a model year newer or will replace your vehicle with a brand new one but these are NOT included in MOST base policies. Ask your agent for endorsements available or your specific policy language.
Stated Amount will pay you the value of the vehicle at the time of the loss, same as above, up to the stated amount in your policy. Therefore, stated amount is actually a limitation of coverage. Actual Cash Value settlement will pay you what your car is worth less your deductible. Stated Amount actually puts a cap on what will be paid for a total loss. This is usually placed on classic or antique vehicles to protect the carrier from a large increase in value due to the rarity of the car increasing with time.
Agreed Value will pay you the amount stated in your policy for the total loss of your vehicle regardless of what it is worth at the time of the loss. This is your most expensive option and is again typically reserved for high value, classic or antique vehicles. The insurance company will require an appraisal from a reputable appraisal service prior to setting the Agreed Value of the vehicle on your policy. This is a great coverage for collectors since it protects your investment against any fluctuations in value that may occur. However, you will never get paid more than the Agreed Value listed on the policy so this needs to be updated if the value of your vehicle increases over time.
Most car owners will only ever need the Actual Cash Value settlement option. However, high end, antique and classic auto collectors need to be aware of the different settlement options and make sure they select the best one for them. Feel free to contact us at the Frederick Agency, 419-732-3171 for any of your auto insurance needs. If you have a nice car, we may require a test ride when we insure it!
By Brennan Madison