What is an Agreed Value in insurance policy terms?

An Agreed Value in insurance policy terms refers to a fixed amount that has been mutually accepted by both the insurance company and the insured at the outset of the policy. This amount represents the value of the insured property and is established to avoid disputes in the event of a covered loss. By having an agreed value, the insured knows the exact amount they will receive in the event of a total loss, which provides certainty and confidence regarding coverage.

This concept is particularly important in situations where property values may fluctuate or where specific items may have particular value that is difficult to establish post-loss. An agreed value allows both parties to clearly define expectations without leaving room for interpretation during a claims process.

This understanding contrasts with other terms; for instance, the estimation of policy value by independent assessors can involve variability and subjectivity. Market value refers to the property’s worth at a particular time, which may not align with the agreed value. Similarly, the total of all insurance claims does not relate directly to how agreed value works, as it involves the cumulative value of claims rather than a predefined and accepted amount for a specific property or item.