Insurance Value
When it’s hard to figure out how much a car is worth, it can be insured for a set amount. This will explain what the stated amount means and how it differs from the agreed value and the actual cash value. The following example shows how the amount of coverage could be used in a typical situation.
You own Green’s Grocery, which sells vegetables in bulk. You just bought a big truck that you plan to use to move fruits and vegetables. Even though the truck is 30 years old, the engine is brand new. It also has new brakes, tires, and a way to lift it.
You have spent a lot of money on the truck, and you want to make sure that your money is safe. You call your agent and tell her that you want to add the truck to your car insurance. You tell your agent that you want liability, comprehensive, and collision coverages for the truck. The next day, your agent calls you with bad news. Your car insurance company doesn’t want to cover the car. The insurance company says it’s too hard to figure out how much the truck is worth because it’s old and you’ve made changes to it. But your insurance company gives you a break. It will cover physical damage to the truck up to a certain amount. Stated amount coverage is usually given when it’s hard to figure out how much the car being insured is worth. This is a common way to cover trucks. A commercial auto policy will also cover antique cars up to a certain amount.
By adding an endorsement to your policy, you can cover a vehicle for a certain amount. You decide how much the car is worth. This amount is then written as the Limit of Insurance in the endorsement. The stated amount of coverage is subject to a deductible, which is written in the endorsement below the limit. The Stated Amount Endorsement changes the terms of the commercial auto policy’s Limit of Insurance. If the endorsement is not there, there is no limit on the physical damage coverage. If a covered auto is damaged by a covered cause, your insurance company will pay the lesser of the cost to fix or replace the damage or the car’s actual cash value.
As was said above, the limit of your insurance in the Stated Amount of Endorsement is the value you give your car. Still, the amount you get for a loss might be less than the amount listed. Under the Stated Amount Endorsement, the most your insurance company will pay for a single loss is the least of:
Cash value of the property that was damaged.
Cost to fix or replace the property that was damaged; or
Insurance limit in the endorsement
For example, let’s say that you think your produce truck is worth $50,000. You have bought full coverage insurance for the truck with a $1,000 deductible. Your truck gets wrecked when a tornado rips through town. The insurance company says that the truck is a total loss. Your insurance company may agree with how much you think the truck is worth. It pays you $49,000.
Your insurance company could also decide that the value you put on your truck is too high. Your insurance company says that your truck is worth $30,000 in cash. Since the cash value is less than the insurance limit, your insurance company only gives you $34,000.
As a way to figure out how much something is worth, the stated amount is very different from the agreed value. When you and your insurer agree on the value of a property before coverage starts, this is called a “agreed value.” If the property is damaged or destroyed, the agreed-upon value is used to figure out the loss. When damage happens to property with a stated amount value, the loss is only based on the stated amount if it is less than the property’s actual cash value or the cost to fix it.
Most of the time, the Limit of Insurance listed in the Stated Amount Endorsement is used to figure out how much the policy costs. Most of the time, the physical damage coverage premiums for a truck are based on how much the truck cost when it was new. Under the Stated Amount Endorsement, the stated amount is used to figure out the premium. The amount given may be a lot less than what it would cost to buy something brand new. So, the endorsement could save you money on your premiums for physical damage.
Insurers say that a set amount of coverage is good for the policyholder in two ways. One is that you might be able to save on premiums for physical damage. The second benefit is that the endorsement lets you insure customized cars based on how much they are really worth. Of course, this is a benefit only if you know how much your car is really worth.
A stated amount of coverage is a big plus for the insurance company. If the car is a total loss, the insurance company is not required to pay the maximum amount. Instead, the insurance company can pay what it thinks the car is worth.