There are three different bases that an insurance company can use to value an insured auto. Lets first look at the one that almost everyone has on a typical insurance policy:
Actual Cash Value (ACV)
ACV translated means “What its worth in cash, today (just before you crashed it).” After your accident, an insurance company adjustor will go out to the tow yard and look over your vehicle. After that, using sources of their choosing, they will look up what the typical value should be for your car, and this will typically be their settlement offer. They may adjust this offer if you object and have some evidence to back up your claim on why there should be a different value. Or they may not. If the disagreement is strong enough you may need to hire either a lawyer or a mediator. Needless to say this is not an ideal position to be in. You buy insurance so you can be taken care of when suffering through a difficult situation. You don’t need to be researching classic car values, making angry phone calls, firing off letters etc.
Since most typical auto policies cover you on the ACV (Actual Cash Value) as defined above, is there a better option for that sweet ride, as a classic vehicle owner myself, let me answer for you “YES!”? So since most typical big auto insurance company sells policies that pay out on an ACV basis. We covered that above. We know those same big auto insurance companies have lots of customers with collectible autos who want something better. Unfortunately, those big auto insurance companies are typically not set up to handle this sort of thing properly (for reasons too complex to go into here). What winds up happening is you often get offered a Stated Value policy by the typical sales agent for those big auto insurance companies.
This is what Stated Value says about a total loss:
“In the event of a total loss we will pay the Stated Value or the Actual Cash Value, whichever is less.”
Did you catch the last part of that sentence? Stated Value has an escape clause that lets the insurance company fall back to ACV… and its typically the default action too. Chances are that’s not what you had in mind when you paid extra for the Stated Value endorsement.
So is Stated Value designed to rip people off? No. It can be a good thing in some very narrow circumstances… the kind that likely will never do you any good.
- Stated Value exists to decide how much premium you pay. Not how much you get paid.
- Stated Value lets you insure the car for less than what its really worth in exchange for a lower premium.
- Since a lot of agents don’t know the difference between Stated vs. Agreed value and they are selling you a policy based on price alone, you can be put in a bad position without even knowing it!
Ok, I now understand the basics of the two policy types above and neither one sounds that good, if ACV is the problem you don’t like (Which you shouldn’t like it for your sweet classic ride), Agreed Value is the solution. If you have a classic car insurance policy – from a dedicated company that loves and knows how to insure classic cars – this should be the kind of coverage you have. Instead of the above scenario with ACV, what happens instead is you and the insurance company agree on the vehicle value when you sign up – before the policy is issued and any money changes hands. In the event of a disaster, the insurance company guarantees to pay the value that the two of you agree upon before shaking hands. No ifs, ands or buts.
We said this “should” be the kind of coverage you have. You might not. To find out for sure, look in the physical damage section of your policy. Somewhere in there it will say what is going to happen if your classic car is totaled. The exact statement should be very close to this:
In the event of a total loss we will pay the Agreed Value.
That’s it. Short and sweet. No wiggle room. Agreed Value is a simple idea and if the coverage is what it claims to be it should be written up simply in the policy.
So that’s the good news. An Agreed Value guarantees you will get the protection you paid for.
Clear as mud so far? That’s understandable. This is something that even professionals who do this for a living get wrong fairly often.
Give us a call and we would be more than happy to walk you through your options on the best way to cover that sweet ride.
If you want to guarantee yourself the value you expect on your classic car, refuse to settle for anything less than an Agreed Value on a classic insurance policy.
by Travis Gensler