We process several prior to loss appraisals per day for vehicle owners who were sold the wrong type of insurance. Typically these cars have been restored or customized and when they bought the policy the very nice agent or broker that sold them the policy asked them what the car was worth.
They pay a monthly premium and hope all is well and for most it’s not an issue.
Why do we buy Insurance? Basically, life happens and in the event of a loss, you have insurance to protect that asset. So one of the most important factors in choosing an insurance policy is in the event of a claim, what are you going to get. The second important factor is what that policy is going to cost.
The average car is bought new and depreciates until it becomes collectible and starts to appreciate in value. The average late model car is insured under a Stated Value Insurance policy that will pay you the Fair Market Value of the car prior to loss. This means that if you are in an accident, a claims adjuster will determine the current Fair Market Value of your car and that’s the offer they will make. Should you disagree with their offer a Stated Value policy has a provision called the appraisal clause, which is a documented process for disputing the offer they give you. The key here is that a Stated Value Policies pay Fair Market Value and have an Appraisal Clause.
The typical collector car or custom car has a value that is either appreciating or the value not reflected by current market data. These types of cars should be insured under an Agreed Value insurance policy that pays the owner the Replacement Value of the vehicle should they have a total loss. The key to an Agreed Value policy is that you and the insurance company “agree” to its replacement value before you buy the policy, therefore an Agreed Value policy has no provision to dispute the value offered in the event of a claim because it was previously agree to by you and the insurance company when you bought the policy.
So as to the title of this article, you can read your insurance policy and figure out what kind of insurance you have by determining if you have an Appraisal Clause in it or not. If you have an appraisal clause you are entitled to the Fair Market Value and if there is no appraisal clause you are entitled to the agreed value amount as documented in your policy.
Most people assume that since the Replacement Value is more that the Fair Market Value this type of insurance must be more expensive…. Well its not. People take better care of collectible cars. They don’t drive them daily and most likely keep them garaged. Agreed value policies have limited use provisions which typically are that the car has to be garaged, not a daily driver and no more than 5,000 to 7,000 miles per year. Limited use reduces that claims on these cars and therefore the policy premiums are lower. Not just lower, but as much as 60% less for better coverage.
So if you have a collectible or custom car that you need to get insured an agreed value policy will give you better coverage should you have a claim at a lower premium. It’s a win-win situation! Read you policy, if it has an appraisal clause it’s not the right type of insurance for a collector or custom car!!!