Understanding Actual Cash Value

Before diving into the differences between agreed value and stated value policies, it’s useful to know how most auto insurance policies work.

 The typical policy will cover a vehicle for its actual cash value, or ACV. This takes into account the cost of the vehicle when new as well as its depreciation (calculated based on the mileage, age, and condition of a vehicle). For example, should something catastrophic happen to a policyholder’s 2018 Toyota RAV4, the insurance company will cut them a check for, say, $18,000, even though they purchased the model for $30,000 and similar RAV4s are selling on the used market for $25,000.

 If you’re after slightly better terms for your daily driver, you could look for a policy that guarantees the model’s replacement cost value (RCV) rather than its ACV. Under RCV plans, the policyholder will receive enough cash to replace their totaled vehicle with a near-identical model, though they’ll pay a higher premium for that benefit.

 Of course, neither of these policy options are ideal for protecting a rarely used, possibly appreciating classic car. For that, owners will likely prefer an agreed value or stated value plan.

How an Agreed Value Policy Protects Your Classic Car

Agreed value coverage is among the most popular types of insurance with classic and collector car owners and for good reason. With an agreed value policy, like what’s offered by OpenRoad, you and your insurance company agree on a payout amount that reflects your classic car’s value based on its rarity, condition, and historical significance. You’re then guaranteed the agreed value (rather than a depreciation-dependent payout) in the event of a total loss.

How a Stated Value Policy Protects Your Classic Car

Another option classic car owners turn to is stated value insurance. When applying for such a policy, the car owner will assess their vehicle's value and state it on the form. They may also need to provide the insurance company with documentation supporting this assessment, and they'll pay a premium based on that number. However, unless dictated by the policy, the car owner isn't guaranteed that amount in a loss event. The insurance company has the option to pay either the policy’s stated value or the vehicle’s actual cash value, typically deferring to whichever is less.

How to Determine Which Policy Is Best for You

There are a couple of things you should consider when choosing between agreed value and stated value insurance. The first is affordability. Because the payout from a stated value policy is typically less than that of an agreed value plan, the premium is usually lower, making it an attractive option to classic car owners on a budget. However, you’ll have to weigh that lower rate against the possibility of an actual-cash-value payout in the event of a total loss.

 The second thing you may need to consider is the ease of valuing your car. Modified vehicles, one-offs, and unusual imports can be difficult to accurately assess since there are few benchmarks for comparison. If your classic car falls into a niche category, your chosen insurance company may not be willing to give you an agreed value policy, which makes a stated value policy the next best thing.