Understanding Agreed Value vs. Actual Cash Value Insurance Coverage

Insurance policy coverage for vehicles such as cars, motorcycles, and RVs, as well as watercraft and boats, varies dramatically from policy to policy. While two different policies may both provide coverage in the event of a total loss, the amounts they cover for the same vehicle could be different. This is because insurance policies provide one of two coverage options for total loss: “Agreed Value” or “Actual Cash Value.” It is extremely important to understand which type of coverage you have to ensure you have the protection you need. 

Agreed Value Coverage

Agreed Value insurance coverage is a pre-determined amount of coverage for your vehicle or watercraft in the event that you have a total loss. This amount is determined at the outset of your policy and does not vary for the duration of your policy coverage. For example, you select an insurance policy for your new car and the “Agreed Value” amount is $23,000. In the unfortunate event that you get in an accident and the car is totaled, your insurance company will pay you $23,000, minus your deductible, for the loss. 

Actual Cash Value Coverage

All vehicles and watercraft depreciate over time due to age, amount of use, etc. With Actual Cash Value policies, the insurance company will assess the actual value of your car at the time that the total loss occurred. For example, if you own a vehicle that is 5 years old and has 100,000 miles on it, you will not be reimbursed for the vehicle as if it were brand new. Those depreciation factors will be considered in determining what the insurance company thinks is the “Actual Cash Value” of the vehicle or watercraft when it was totaled. 

It is important to note that coverage availability may vary by state and vehicle value. Speak to an insurance agent or broker that can answer your questions and help you compare policies. With a full understanding of the type of coverage you have, you will rest assured that you have the coverage you want and need, at the most affordable price.