Standard vs. Agreed Value: Is Your Car Insurance Leaving You Exposed?

Depending on what kind of car you have, you need to pick a different sort of insurance

While commercials might lead you to believe that even a cave man can understand auto insurance, we're not so sure.

Generally speaking, there are two types of automotive insurance coverage: standard policies and agreed value policies. They are two different plans designed for very different types of vehicles and their drivers.

But first a quick note: Because the focus of this article is to compare standard vs. agreed value, we won't go into voluminous detail regarding the different types of standard auto insurance policies. Suffice it to write that there are dozens of choices. One thing that many standard policies have in common is that they depreciate the value of your vehicle as it ages. Therefore, if you have an accident that totals your vehicle, the insurance company pays you the depreciated value, less your deductible.

For example, if you purchased, a 2005 Ford Escape for $23,000 in the summer of 2005 and totaled that Escape today, you'd likely get a check for the actual cash value, around $8,000 give or take a few bucks. Standard coverage reflects the driving reality of commuting in and living with an average vehicle.

However, what if you own an antique car or some other type of vehicle that is anything but normal? Typically owners of sports cars, classic cars, antique cars, hot rods, and custom vehicles seek out insurance carriers who offer "Agreed Value" policies. An Agreed Value auto insurance policy may be right for you. These policies base the vehicle's replacement value on a formal appraisal, regardless of its current market value.

For example, the owner of a perfectly restored 1970 Plymouth Cuda convertible with a 426 Hemi V8 requires an insurance policy approaching $1 million. Conversely, the owner of an unrestored and tattered 1970 Plymouth Barracuda coupe with a lowly 225-cubic inch six-cylinder owns a car that is, by comparison, nearly worthless.

Both owners need to pick an insurance policy that is right for them.

Agreed Value policies often include restrictions such as mileage limits and no-commuting clauses. Some insurers require that covered vehicles must be fitted with alarm systems and hidden transmitter tracking devices. Policies often require that policyholder must have a separate vehicle for general use, and may also restrict vehicle drivers to those who have clean driving records.

These safeguards ensure that the vehicles aren't been used for everyday transportation duties, and reduces the insurance company's exposure to heavy losses. In exchange, the insured knows that if the vehicle is stolen or totaled, he will be reimbursed for a known amount that reflects the accurate value of his special ride.

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