Agreed Value
Plain English
Agreed value means you and your insurer settle on what the property is worth before any loss happens. In business property policies, it usually means the coinsurance penalty won't apply while the agreement is in effect. Insurers often ask for a statement of values to set the amount, and it usually needs updating each year.
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Definition
Agreed value is a method of valuing property in which the insured and the insurer agree in advance on the amount to be paid for a covered loss. In commercial property insurance, an agreed value option typically suspends the coinsurance clause for a set period, as long as the agreed amount is carried.
Why It Matters
Agreed value takes the guesswork out of whether you're insured enough under a coinsurance clause. It also matters for items whose value is hard to establish after a loss, such as collectibles or classic cars on some policies.
Real-World Example
Imagine a shop owner sends her insurer a statement of values showing her building and equipment at $750,000, and the insurer agrees to that figure for the policy year. A fire causes $200,000 of damage. Because agreed value is in effect, the insurer doesn't apply a coinsurance penalty, and pays the covered loss less the deductible, up to the limit.
Common Misconceptions
- Assuming agreed value lasts forever; it usually runs for a set period and needs renewing.
- Thinking agreed value means the insurer pays the full agreed amount for partial damage.
Key Takeaways
- The California Department of Insurance: agreed value is "a method of loss valuation where the insured and the insurer list an agreed upon amount to be paid in case of loss."
- Per the same guide, it waives the coinsurance penalty.
- Insurers usually need an updated statement of values to keep it in effect.
- Partial losses are still paid for the actual covered damage, not the full agreed amount.
Frequently Asked Questions
Does agreed value cost more?
It can, and it usually requires documentation of values. Ask your agent.
What's it commonly confused with?
Stated value, which on some policies sets a maximum but lets the insurer pay less.
Related Terms
Related Coverages
- Commercial Property Insurance
Explore the rest of the Business Insurance category.
Browse Business Insurance terms →Sources
The factual claims on this page were checked against these sources. Rules and figures change, so check the source itself if you need to confirm the current version.
- Commercial insurance guideCalifornia Department of Insurance
Educational information, not advice: This page is for general education only, not legal, financial, or insurance advice. Actual coverage, discounts, and requirements depend on your policy’s wording, your insurer, and the laws of your state. Confirm specifics with your own insurer or a licensed agent before making a decision. Insurpedia does not sell insurance and does not recommend specific insurers.