Agreed Value, Stated Value, Insurance to Value (?)

[Tcollins]

Hi All,

I'm an insurance professional and am also in the process of studying for risk management designations.

I'm using a variety of resources and believe some of these resources are using different terminology for the same concept.

Is "insurance to value" the concept of meeting the coinsurance requirement (such as 80% of replacement cost on a homeowners coverage A limit), or am I wrong about this?

I'm also wondering how agreed value vs. stated value differ (or if they are interchangeable).

Lastly, comparisons between historical cost, nominal dollars, and then constant dollars or real dollars. I understand that constant and real dollars can be interchangeable and have to do with the monetary value of something today (if you were to include things like inflation, so something valued at $100,000 in 2000 may be worth $140,000 in today's dollars).

But nominal dollars and historic cost - can these essentially be the same thing also, or are they different?

Thank you in advance for anyone who can help me understand these fairly basic concepts. I think I am overthinking things but want to be sure.

With Gratitude,

Tcollins

 

[fed up]

Insurance to Value (in my experience) has been the coverage provided in the policy compared with the appraised value of the home or dwelling. I look up data to write a policy and run a quote and come up with a dwelling cost of 200K. An inspector or appraiser looks at the property and comes up with a replacement cost of 220K My ITV is off by 20K unless I can see where the appraisal is off.
I can also add coverage for historical increases in replacement cost and a policy is reviewed and renewed every 12 months with a new replacement cost figure. I can go 120-150%, sometimes more, in what I cover the property for. So I can write a policy with 200K in coverage, endorse it for 120% and have a policy with 240K in coverage. I'll let others weigh in but look back at the beginning definitions

 

[adjusterjack]

Is "insurance to value" the concept of meeting the coinsurance requirement (such as 80% of replacement cost on a homeowners coverage A limit), or am I wrong about this?

What you are wrong about is putting quotation marks around a phrase that doesn't appear in the Homeowners policy form.

In the vernacular, yes, insurance to value does equate with insuring property to its replacement cost. If you have a homeowners policy go to the Conditions section and read the Loss Settlement provisions. Coinsurance is also addressed in commercial property forms.

I'm also wondering how agreed value vs. stated value differ (or if they are interchangeable).

They are not interchangeable though they are commonly thought to be. They are defined by the policy provisions.

Agreed value generally involves an agreement between the insurance company and the policyholder. Something as simple as this:

If the vehicle is stolen or totally destroyed, we will pay the amount stated in the Declarations.

Stated value does not necessarily imply such an agreement by the insurance company, though it could be defined that way.

The best way to understand insurance concepts is to read insurance policies.

As for your dollars question, I have no idea. All that concerns me today is what my dollars buy me today.

Insurance to Value (in my experience) has been the coverage provided in the policy compared with the appraised value of the home or dwelling. I look up data to write a policy and run a quote and come up with a dwelling cost of 200K. An inspector or appraiser looks at the property and comes up with a replacement cost of 220K My ITV is off by 20K unless I can see where the appraisal is off.

You're mixing different concepts in there. The appraised value of a property is what it can sell for. The replacement cost is what it will take to rebuild it if it burns to the ground.

There are so many ways of estimating replacement cost that no one will ever be 100% accurate. Which is why insurance companies provide inflation guards, code upgrades, guaranteed replacement cost, etc.

 

[fed up]

You're mixing different concepts in there

I was trying to find the correct laymen's terms and failed miserably. I only focus on the dwelling number on an appraisal

 

[adjusterjack]

The insurance industry can be it's own worst enemy when it comes to writing insurance policies. With that in mind, here is a Plain English Homeowners Policy:

 

[Brokerlikeaboss]

Agreed amount and Stated Amount are very different. Agreed amount is the amount an insurance company agrees to pay for an item in the event of a complete loss. Stated amount is essentially a cap. I state the amount of my truck is $15,000 (my insurance cost is based on that). At the time of loss, if the adjuster feels it's worth $10k, then that's what you get. If the adjuster feels it's worth $20k, you get $15k