Definition:Agreed value
💰 Agreed value is a valuation method used in insurance policies where the insurer and the policyholder stipulate, at the time of underwriting, the specific dollar amount that will be paid in the event of a total loss — eliminating the need for a post-loss appraisal or actual-cash-value calculation. This approach is most common in lines where market value can be difficult or contentious to determine after a loss, such as marine, fine art, classic automobile, and aviation insurance. By locking in the value upfront, both parties gain certainty and reduce the potential for claims disputes.
📝 To establish the agreed value, the policyholder typically provides an independent appraisal or documented evidence of the asset's worth — such as a recent purchase price, auction record, or professional valuation report. The underwriter reviews this evidence, may adjust for depreciation or market conditions, and endorses the final figure onto the policy via an agreed value endorsement or schedule. In the event of a covered total loss, the insurer pays the scheduled amount without deducting for depreciation, though partial losses are usually settled on a repair-cost basis. Premiums tend to be higher than on comparable ACV or replacement-cost forms because the insurer accepts greater valuation certainty at inception.
🏛️ The agreed-value mechanism carries particular weight in high-net-worth and specialty markets, where one-of-a-kind assets defy standard pricing guides. Policyholders benefit from the elimination of coinsurance penalties and the peace of mind that their recovery matches their expectation. Insurers, in turn, gain a clearer picture of their exposure at the point of binding, which supports more accurate reserving and reinsurance purchasing. Periodic re-appraisal requirements — often every three to five years — help keep agreed values aligned with market reality and prevent moral-hazard concerns from creeping into the portfolio.
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