What is the difference between agreed value and actual cash value car insurance coverage?

If your car is totaled in an accident, knowing how much you’ll be paid is important. The exact amount depends on the type of car insurance coverage you have.

Agreed value insurance has a coverage limit you agree on with the insurance company, and cash value is based on the current price of a vehicle. The best coverage for you depends on your vehicle, local regulations, and other factors.

Read on to learn more about agreed value vs. actual cash value car insurance coverage and how insurance companies decide the value of a vehicle.

Agreed Value vs. Actual Cash Value Car Insurance

Agreed value and actual cash value car insurance are both collision or comprehensive coverage types. They can pay for repairs or even a new vehicle if an accident or a disaster like a fire damages your vehicle.

However, the amount of money you get after a total loss could be very different, depending on your insurance type.

Cash Value Car Insurance Policies

Most policies give the actual cash value of the vehicle. Insurance companies have extensive databases with the costs of vehicles, and your company will calculate your car’s current value after an accident.

However, vehicles often depreciate over time, and you may need to spend more than you receive to buy a comparable vehicle.

Agreed Value Car Insurance Policies

Actual cash value policies don’t usually cover modified vehicles, classic cars, or expensive luxury vehicles like Ferraris. If you have one of these vehicles, getting an agreed value policy is a good idea.

With an agreed value car insurance policy, you and your insurance company agree on the vehicle’s value ahead of time. Then, after an accident, the company pays up to that amount minus your car insurance deductible.

You can buy enough coverage to pay for a replacement vehicle, or you can pay lower rates for a smaller amount. For example, someone with a classic car worth $500,000 could choose an insurance limit of $300,000 to save money. Even after a total loss, the maximum amount they could receive would be $300,000.

How Insurance Companies Determine the Value of a Car

With an agreed value policy, an appraiser often visits you and assesses your vehicle. Then, you can negotiate with the insurance company until you and your insurance agent decide on a value that protects you from losses while keeping rates low.

With cash value insurance, companies usually compare your car to similar vehicles sold recently. They can also use a published guide with estimated values.

Things to Remember About Agreed Value vs. Actual Cash Value Car Insurance Coverage

While you can choose a lower policy limit than the vehicle’s actual value, agreed value car insurance is usually more costly than actual cash value.

Classic cars like a 1965 Ford Mustang or vehicles with modifications like a raised suspension or a premium speaker system can cost several times more than standard cars, so agreed value insurance can be expensive.

Compare car insurance options carefully to ensure you have the coverage you need and avoid a loss after an accident.

Case Studies: Agreed Value and Actual Cash Value Car Insurance Coverage

Case Study 1: John’s Vintage Car Insurance

John owns a classic car that he treasures dearly. He wants to ensure that his car is adequately protected, so he starts exploring insurance options. During his research, he comes across two types of coverage:

• Agreed value
• Actual cash value

After carefully comparing the two, John decides to opt for agreed value coverage. With agreed value coverage, John and his insurance provider come to a mutual agreement on the car’s value at the time of policy inception. They consider factors such as the car’s age, condition, rarity, and market value. They settle on an agreed value of $100,000 for John’s vintage car.

Read more: How can I find car insurance for a vintage or custom car?

Case Study 2: Sarah’s Modern Car Insurance

Sarah, on the other hand, owns a standard modern car and is looking for insurance coverage that suits her needs. After researching different options, she decides to go with actual cash value coverage.

With actual cash value coverage, Sarah’s insurance provider determines the car’s value at the time of the accident or loss based on factors such as its age, condition, mileage, and current market value. At the time Sarah purchases her insurance policy, her car is valued at $25,000.

Case Study 3: Alex’s Modified Car Insurance

Alex is a car enthusiast who loves modifying his vehicle. He has invested a significant amount of money in upgrades, including a custom paint job, enhanced engine performance, and upgraded suspension. Understanding the importance of proper insurance coverage for modified vehicles, Alex considers both agreed value and actual cash value coverage options.

After consulting with various insurance providers, Alex realizes that agreed value coverage is better suited to protect his investment in modifications. Most insurance companies offering agreed value coverage allow policyholders to include the value of modifications when determining the agreed value of the car.