What is stated value car insurance? How does stated value auto insurance work? Today, we’re explaining everything you need to know about this commonly-misunderstood type of car insurance coverage.
What is Stated Value Auto Insurance?
Stated value car insurance is coverage that reflects an amount that is “stated” at the onset of the policy. When you get car insurance for the vehicle, you state the value of the car. You tell your insurer what your car is worth, along with the paperwork supporting that value.
If the stated value is approved, then your insurance company will insure your vehicle to that stated amount.
In the event of a total loss, your insurance company can choose to pay either the stated value or actual cash value of the vehicle (whichever is less).
How Stated Value Car Insurance Works
The valuation of a vehicle is based on its value after a total loss. If you get into an accident and your car is declared a total loss, then your insurer is required to reimburse you for the value of your car. To obtain that value amount, insurers use actual cash value, agreed value, or stated value.
Actual Cash Value: The value of your car the moment before the loss occurred (i.e. the second before you crashed it).
Agreed Value: The value of your car based on an agreement between you and your insurance company.
Stated Value: The value of your car based on a statement you made to your insurance company.
Stated value determines how the insurance company rates your vehicle, but it does not necessarily determine the amount your insurer pays you in a total loss. An insurance company will word its coverage to pay out the stated value amount or the actual cash value amount – whichever is lower.
Is Stated Value Car Insurance the Best Option for Me?
Stated value car insurance is the best option for certain drivers in certain situations.
Let’s say you have a car that is valued much higher than what you want to insure it for. Your grandparents may have passed on a classic car with $500,000 to you, for example. You don’t want to insure the vehicle for the full $500,000, so you list the car’s stated value as $50,000. You have affordable car insurance premiums, and you’re still protected against minor repairs and damages.
In the event of a total loss, your insurance company will compare the stated value against the actual cash value to determine how much you should be paid out.
Pros and Cons of Stated Value Car Insurance
Things to consider with stated value car insurance include:
- You can pay affordable car insurance premiums even on higher-end vehicles
- You can easily add stated value car insurance to a regular car insurance policy
- Your insurance does not cover 100% of your vehicle’s value; it covers the vehicle’s “stated value”
- These policies can be confusing, and many drivers confuse stated value with agreed value, which can leave you with a disappointingly low payout after a total loss
- Your insurance company can choose to payout the stated value or actual cash value of your vehicle, and they’ll always choose the lower amount; if your vehicle has a stated value car insurance policy of $50,000, but its ACV is lower, then you will not receive the $50,000 payout
Agreed Value Versus Stated Value
It’s easy to get confused between stated value and agreed value. So what’s the difference?
Agreed value is a car insurance option typically offered by specialty insurers. It’s based on the proven value of your car as agreed by you and your insurance company. This value is based on appraisals, photos, and other documentation.
With an agreed value car insurance policy, the insurer will guarantee payment of your agreed value in the event of a total loss.
Let’s say you buy car insurance for your classic car. You and your insurance company setup an agreed value policy for $50,000. If your car is totaled in an accident, then your insurer will pay $50,000. This is the agreed value.
With a stated value car insurance policy, your insurance company will pay either the stated value or actual cash value (whichever is lower). Your insurance company has the power to choose.
If you own a classic car and want to protect it against a loss, then agreed value is the best option – assuming the car will not increase in price. With stated value, you could lose a considerable amount of money – say, if your $500,000 car is totaled and the stated value of your policy is only $50,000.
Actual Cash Value Versus Stated Value
Actual cash value (ACV) is the way in which value is calculated on a standard car insurance policy.
Your car insurance company defines ACV as, “The cash value of your vehicle today, just before you crashed it.”
You can also think of ACV as the value of your car minus depreciation. If you bought your car for $20,000 five years ago, then the ACV of your vehicle may be $10,000, which is roughly what you would receive for the car if you sold it today.
ACV policies are fine for ordinary cars, and most car insurance policies use ACV to calculate value.
Stated value car insurance is about reducing the cost of insurance – not increasing coverage. If you have a high-value vehicle but don’t want to pay expensive car insurance premiums, then you may want to consider stated value car insurance to get affordable car insurance while maintaining good coverage.