If you own a boat, four wheeler, ice house, motorcycle, camper, snowmobile, motorhome or jet ski, I hope that you have purchased insurance to cover your investment. But how well is your vehicle actually covered if there is a total loss?
There are basically four types of total loss settlement options offered in the insurance industry for specialty vehicles. Keep in mind that some of these options may be offered for some types of vehicles and not others. I’m presenting these options from most coverage to least coverage:
1. Replacement Coverage.
This is typically the best option, if you can get it. There are a number of variations of this coverage, but the basic premise is that if your vehicle suffers a total loss, your insurance carrier will pay to replace it with a brand new, current model year vehicle that resembles what you had as closely as possible. This means that you may receive more than what you originally paid for your vehicle. This option is typically only offered when buying the vehicle new, and it will usually age off your policy after a few years. In many cases, you may be asked for documentation for how much you paid new for your vehicle, which is then used to determine your physical damage premium.
2. Agreed Value
It may not be as good as a replacement guarantee, but Agreed Value still protects you from future depreciation, and this feature provides you the confidence of not having to wonder how much you would receive in a total loss. In some cases, you may be asked for documentation such as a bill of sale. In other situations, you may simply specify a value and if the insurance company agrees by issuing the coverage at that amount, then you are good to go. This agreed value is normally used to determine your physical damage premium. Depending on the type of vehicle and the carrier, Agreed Value may be available on vehicles of any age, vehicles up to a certain age or not at all. In some cases, it may age off (or require you to reset the value) after a certain number of years.
3. Actual Cash Value
With pure Actual Cash Value coverage, there is no discussion of the value at all when insuring the vehicle. Instead, if there is a total loss, the insurance company will complete their own valuation or appraisal of what your vehicle was worth immediately prior to the loss. This involves looking at its age, condition and features and comparing it to what other similar models have sold for or been offered for sale for in your region. This is the same method used to insure nearly all personal autos. Since no value has been mentioned, your physical damage premium will be based either on the cost new of the vehicle or simply on the insurance company’s knowledge of what claim payments for this kind of vehicle average.
4. Stated Value
If Stated Value sounds better to you than Actual Cash Value, then read this paragraph closely. Stated Value will never pay more than Actual Cash Value, but it may pay less. With Stated Value, you normally tell the insurance company what desired physical damage limit you wish to carry. In a total loss, you will be paid the LESSOR of the Actual Cash Value (as appraised by the insurance company) and the limit you set. Your physical damage premium is based on this limit, this stated value. So all the risk rests on you: if you state a value too high, you are paying for a level of coverage you won’t receive; if you state the value too low to save premium, you may be underpaid in a total loss. While it may not sound overly attractive compared to the options further above, Stated Value is often a practical way to easily and inexpensively establish coverage for many vehicles; the important thing is that you understand that Stated Value is not the same as Agreed Value. You may also wish to periodically review the stated value and adjust it as your vehicle depreciates.
Which of these valuation methods apply on the policy insuring your specialty vehicle? I can tell you that if you added your vehicle to either your Auto or Homeowners policy, it’s almost never going to be insured for Replacement or Agreed Value. In addition, I know several of the largest insurance carriers rarely (if ever) offer these options on any of their policies.
If you want Replacement or Agreed Value, you’ll normally only find it on specialty vehicle policy, and often you may need to go to an independent agent like us to get one with these options. A specialty vehicle policy may cost more than adding the vehicle to your Homeowners or Auto insurance, but in many cases it actually costs less. It will almost always provide more and/or better-fitted coverages, and it also may protect your Homeowners or Auto policy from going up or being non-renewed due to claims you file for your specialty vehicle. A specialty vehicle policy may not offer Replacement or Agreed Value in all cases, however; so you’ll still need to talk to your agent about the options available to you.
Have questions? I look forward to hearing from you so I can answer them.
Ken Cobb is owner of Pine Country Insurance and has been active in the insurance industry for over 15 years. Meet Ken.
Coverage descriptions found in this blog are summaries provided for general educational purposes and cannot fully detail the terms, conditions, limitations or exclusions of a specific insurance policy. Please read your policy carefully.