Here we go again. Search for "AGREED VALUE INSURANCE".
Heres a couple;
http://www.camaros.net/forums/showthread.php?t=99258
http://www.camaros.net/forums/showthread.php?t=72263
http://www.camaros.net/forums/showthread.php?t=70806
Stated Amount vs. Agreed value
It's quite common for clients, as well as agency and company personnel, to misunderstand the coverage provided under a stated amount endorsement. Some confuse stated amount with agreed value and fail to understand how the loss settlement process takes place under either endorsement.
Stated amount is most often used in automobile insurance. One such endorsement provides space to list vehicles in the schedule for which stated amount coverage will apply. The endorsement requires a limit of insurance to be listed for each vehicle in the schedule. Immediately below the vehicle schedule is found this wording:
“Note: The amount shown in the Schedule or in the Declarations is not necessarily the amount you will receive at the time of “loss” for the described property. Please refer to the Limits of Insurance And Deductible Provision which follows.” Looking at that section of the endorsement, the following appears:
The most we will pay for “loss” in any one “accident” is the least [emphasis added] of the following amounts minus any applicable deductible shown in the Schedule:
1. The actual cash value of the damaged or stolen property as of the time of the “loss”;
The cost or repairing or replacing the damaged or stolen property with property of like kind and quality; or
2. The amount shown in the schedule.
Agreed value coverage exists in automobile insurance, personal articles floaters, and in some inland marine policies. For example, the personal articles floater endorsement in the homeowners program (HO 04 61) states the following loss settlement provision for fine arts: “We will pay the amount shown for each scheduled article which is agreed to be the value of the article.” (Note that agreed value coverage currently applies only to fine arts in the 1991 homeowners program. It will be available for all scheduled property in the new Homeowners 2000 program.) An agreed value endorsement is available with some companies in automobile insurance with loss settlement language from one such endorsement stating:
In the event of loss to a "your covered auto" described in the Schedule or in the Declarations for which a specific premium charge indicates that Antique Auto Agreed Value Coverage is afforded:
1. We will, subject to the applicable limit of liability shown in the Schedule or in the Declarations for this coverage:
a. Repair or replace the damaged or stolen property with like kind and quality if the amount necessary to repair or replace such property is equal to or less than the limit of liability shown in the Schedule or in the Declarations; or
b. Pay the amount shown in the Schedule or in the Declarations.
Note that the agreed value wording differs from the stated amount wording in that there is no provision to pay any amount other than what's shown in the schedule for agreed value coverage in the event of a total loss. With agreed value coverage, it's a very easy process --- the company simply cuts a check for the amount of insurance shown in the schedule without trying to determine actual cash value (ACV), repair cost, or replacement cost.
An example will serve to illustrate the difference in stated amount and agreed value. Bill and his neighbor Sharon each purchase identical automobiles costing $75,000. Bill obtains a policy with a stated amount endorsement showing $75,000 in the schedule, while Sharon obtains an agreed value policy with $75,000 as the amount of insurance. A year later both vehicles are stolen and never recovered. Adjusters from each company visit their respective clients.
Bill's adjuster conducts a market search of his automobile, using various “blue books” and dealer estimates to assist in determining the ACV of the year-old vehicle. The adjuster determines the ACV to be $58,000. Since Bill's stated amount endorsement provides payment for the lesser of ACV or the amount of insurance, Bill is paid $58,000.
Sharon's adjuster advises her that since she has agreed value coverage the amount of coverage was agreed on when the policy was written. The adjuster pays Sharon $75,000, the amount shown on the policy. Neither the ACV nor replacement cost are considered in the loss settlement.
It's not difficult to see that Bill will not be very happy, especially when he finds out what Sharon was paid. Bill, and perhaps his agent, may have mistakenly thought that “stated amount” coverage worked to his advantage, when in fact it did not.
What then is the “advantage” of stated amount coverage? Or, better put, “Who benefits from stated amount coverage?” The answer is that the insurance company, not the policyholder, benefits from stated amount coverage. The way the company benefits is by limiting their financial liability to a maximum amount. For example, an insurance company may have a financial requirement (or reinsurance treaty requirement) that no physical damage loss payment for an auto loss may exceed $75,000. Rather than completely turn away business where an automobile is valued above $75,000 the company may elect to write the risk, but with a stated amount endorsement of $75,000. Come claim time the company knows for certain that the most they will pay is $75,000. In limiting their maximum exposure they have complied with their financial or reinsurance requirements.
In Summary
Stated amount insurance is used for the benefit of the insurance company. It would be difficult to explain to a consumer how having a stated amount endorsement attached to their policy would benefit them at the time of a loss. Stated amount coverage does not automatically provide payment for the amount of insurance shown; it states the policy will pay the stated amount or the ACV, whichever is less.
Agreed value coverage benefits the policyholder by providing payment for the amount shown in the schedule without having to worry about receiving a payment of lesser amount
