If you are a car enthusiast who has hunted for insurance, particularly specialty insurance, one of the most confusing areas is how insurance companies determine the valuation. What’s just as important is how insurance use valuation based on the policy type. Knowing the difference is between the types of policies, and how valuation is determined, is critical to getting the right policy with a valuation that is inline with your expectations. Not having the right kind of policy can result in a loss payout that is vastly different than you think you should get. This is particularly true if you are have a collectors car, one of kind vehicle, supercar or other vehicle where leaving the value up the insurance company could be a huge mistake. This is particularly true when the loss isn’t your fault.
With each of these types of policies there are many differences, but the most significant one is where the primary burden of valuation lies. We refer to this as the valuation burden, and for car enthusiasts it the primary thing to consider about each of these policies types.
Why does this matter to you? Because if you don’t agree the value, who the burden is on can make a big difference in how difficult it may be to change the valuation if you disagree with your insurance company.
Another interesting situation is when you have a not at fault accident. In that situation the burden of valuation may actually vary. If you have, for example, stated value or agreed value insurance, and a loss occurs where you are not at fault, the at fault party’s insurance may only have the burden of valuation up to ACV. In that instance, it’s your insurance company that may make up the difference, and then delta between those values and the burden either shifts to you or to your insurance company. This is one of the many reasons, even if you are not at fault, you should engage your own insurance company in any claims.
For each type policy, we’ll discuss where the valuation burdens fall. Of course, if you want to know what to do when you and your insurance disagree on value, or where the valuation comes from, we’ve got two blog posts about that.
Actual Cash Value
Actual Cash Value (ACV) is the most common type of car valuation used. It’s the “typical” method used by your every car insurance policy with most mainstream carriers. Actual Cash Value is calculated by the insurance adjustor (who works for the insurance company) based on USED car values that best match your vehicle. They generally do NOT consider enthusiast markets, though certain companies and policies may. They generally use a valuation company or catalog. The most common is CCC, which is used by the vast majority of the industry. In the event of a total loss, like a significant accident or theft, this is the value used. It’s also important to know that insurance company calculate whether to “total” a vehicle based on it’s value, which is also done using the Actual Cash Value method.
Actual Cash Value Valuation Burden
With actual cash value policies, the burden is generally on the insurance company to determine the actual cash value. This is why they often use an independent service like CCC, it provides them documentation on the value and it’s from a third party. Of course, the vast majority of CCC’s income comes from insurance companies so while they may not necessarily be wrong, don’t expect them to favor your point of view.
The challenge comes in, once they have documentation about the ACV of the vehicle, the burden then falls to you if you feel the fair market value is higher. In those situations, if you are close the insurance company may make minor adjustments with documentation. If the difference is significant, you’ll likely have no choice but to hire an appraiser.
One additional note for enthusiasts, insurance companies – whether your own or an at fault company – are not required to consider modifications when determining ACV. With your own insurance company they are likely outright excluded.
Stated Value policies are often offered as a mainstream or cost effective “enthusiast” coverage. However, be careful. The name can be misleading. While it sounds like you are getting the “stated” value, MOST traditional stated policies use the LESSER of the stated value or the actual cash value. This may leave you getting less for your car than stated. It may also leave you with less than 100% of the true replacement value of the car. Like Actual Cash Value, stated value policies do not often account for collector or enthusiast markets, because the insurance company has the option to use Actual Cash Value.
Stated Value policies are also very commonly offered in supercar coverage from mainstream carriers. They may leave you thinking you’ll get a specific value for your Porsche, McLaren, Ferrari, Lamborghini or other supercar. However, when they calculate and compare stated value to any available book/actual cash value, so you may wind up with less.
We recommend be careful when brokers or companies try to push stated value as a great option for enthusiasts. While there are certainly places where stated value makes sense, don’t fall for the potential trap of thinking you are assured of getting the stated value.
With actual bash value policies, the burden is generally on the insurance company to determine the value. This is why they often use an independent service like CCC, it provides them documentation on the value and it’s from a third party. Of course, the vast majority of CCC’s income comes from insurance companies so while they may not necessarily be wrong, don’t expect them to favor your point of view.
Stated Value Valuation Burden
As we’ve discussed with stated value policies, your insurance company agrees to consider the value of your vehicle higher. In this instance the valuation burden is considered “shared”.
However, their burden is actually only to the actual cash value. Beyond the ACV they may agreed to pay up to stated amount, largely because they have factored that into the premium. However, if they don’t because they don’t agree with the stated value of the car, the burden moves to you for anything above and beyond the actual cash value.
Stated value policies make it easier to recover the value of items like modifications, like because they were declared up front. But with stated value policies, in the event there is any disagreement, the burden falls to you beyond ACV.
One important thing we should note is that most track day insurance policies are written as stated value.
Agreed Value and Guaranteed Value
Most true specialty and enthusiast focused insurance companies offer Agreed Value policies, which is the industry standard term. Some companies, like Hagerty, offer what they call “guaranteed value” policies. Agreed and Guaranteed Value policies are similar, with Guaranteed Value offerings generally bundling additional coverage or offering a more clear value guarantee.
Agreed Value and Guaranteed Value policies generally provide for a specific and agreed upon value up front. The value is the basis for any payments in the event of a total loss.
Additionally, if you’ve restored, made modifications or otherwise have unique situation, many companies that offer agreed value policies will let you factor this into the policy. This is a great option, and not just for high end cars or collectors. These policies are often offered starting as low as $5,000 of coverage. They have applicability is just about any situation where the Actual Cash Value wouldn’t represent the true replacement cost of the vehicle. In many cases unless the value or risk is considered very high, your insurance company may not even require an appraisal. In those situations, pictures and/or documentation is generally requested.
With Agreed Value and Guaranteed Value policies you’ll always want to verify both what the insurance company thinks the value of your specialty car is and where they get the value from, or be prepared to request what you expect the replacement value to be. For example, Hagerty has it’s own value database. While this is great because it does evaluate the enthusiast market, it doesn’t always mean their value will match what you expect, particularly if you have modifications or a unique vehicle.
It should also be noted that with Agreed Value and Guaranteed Value policies that the additional value is factored into the price. So while you may wind up paying a little bit more in some situations, you are also getting more.
Agreed Value Valuation Burden
Agreed value policies are unique in that up to the agreed amount, the burden on valuation lies with the insurance company. These are different than ACV and stated value policies in that because the insurance company agreed up front, there is a contractual bond to that value that can only be moved by proving the valuation was inaccurate.
Since most insurance companies factor in the value into the premium, it generally takes a pretty substantial difference in value or misrepresentation for them to argue it since the burden is primarily on them. And most insurance companies offering agreed value premiums will often validate or dispute valuation in underwriting to avoid that very situation.
While for most agreed value policies an appraisal is not required, we do still recommend keeping some documentation on how you come up with the value in case there is a dispute. In our experience, these situations are rare. Which is what makes agreed value policies ideal for car enthusiasts, even if you don’t have a collector car.
For Information Purposes Only
Of course, like all of our blog posts – this information is intended to be educational. This blog post is intended for general knowledge and is direct insurance or legal advice. You should read and review any policies carefully.
Shift Brokers Can Help You Navigate
We also recommend you work with an insurance broker who can help you navigate different policies. The best part about brokers are, they don’t represent the insurance companies. They represent you.
Shift Brokers is car insurance for car enthusiasts. We can help you understand the how different carriers will value your specialty car. In addition, we can help you select from insurance companies that will get you the kind of service and coverage you need. And because we are car enthusiasts and specialize in policies for car enthusiasts, we can help you navigate the unique needs and situations only car enthusiasts find themselves in. The best part is, because we are brokers, we represent you, not the insurance companies.
Request a quote and lets start talking cars.