Agreed Value
Also known as: Agreed Amount, Agreed Value Coverage, Agreed Amount Endorsement
Agreed value (also called agreed amount) is a provision under which the insurer and the policyholder fix, at inception, the amount of insurance carried on a property item and, in exchange, the insurer suspends the coinsurance clause. Ordinarily coinsurance penalizes a policyholder who insures a building for less than a required percentage of its value by reducing every partial-loss payment. Agreed value removes that risk: the insured typically submits a signed statement of values, the insurer accepts it, and the coinsurance penalty is waived for the policy term. It answers the question "will I be penalized for underinsuring?" with a clear no.
This matters to a small-business buyer because coinsurance penalties are one of the most common and unpleasant surprises at claim time, often discovered only after a fire or storm when the adjuster applies the shortfall. By locking in an agreed amount, the owner of a commercial property, a piece of specialized equipment, or fine-art and inventory gains certainty that a covered partial loss will be paid up to the limit without a valuation fight. The trade-off is that the insured must present—and usually update annually—a credible statement of values, and the premium reflects the full agreed amount rather than a discounted, underinsured figure.
The important nuance is that agreed value governs coinsurance, not the loss-settlement basis. It fixes how much insurance you must carry, not how the loss is valued. The actual claim is still settled on whatever basis the policy specifies—replacement cost or actual cash value—so agreed value and replacement cost are complementary, not interchangeable. Buyers should confirm both: an agreed-value policy settled on ACV can still pay less than the cost to rebuild, because depreciation is applied regardless of the coinsurance waiver. It is also distinct from a stated-amount or a true valued policy; agreed value caps recovery at the limit and pays actual loss up to it, rather than paying the full stated sum automatically. Reviewing the statement of values each year keeps the agreed amount aligned with rising rebuild and equipment costs.
Real-world scenario
Meridian Fine Arts Gallery, a boutique dealer in Santa Fe, rotates roughly 40 paintings through its showroom at any given time. A certified appraiser valued the on-site collection at $850,000, so the gallery bought an agreed value fine arts floater written on an inland marine form with an $850,000 limit and a $2,500 deductible, paying an annual premium of $6,800. Because the valuation was locked in at binding, the insurer waived the coinsurance clause entirely — the owner never had to guess a percentage-to-value at claim time.
Eight months later an electrical fire destroyed six paintings scheduled at a combined $420,000 (including a single canvas listed at $150,000 and another at $95,000). Under an actual cash value settlement, the adjuster could have depreciated the works to roughly $305,000, arguing for market softening. Instead, the agreed value on the declarations page controlled: the carrier paid the full $420,000 scheduled figure less the $2,500 deductible, for a net payout of $417,500, plus $18,000 in smoke-remediation and salvage handling.
Had the gallery instead carried a standard replacement cost form with an 80% coinsurance requirement and insured only $600,000 of the $850,000 collection, the penalty math would have bitten. With $680,000 of coverage required to avoid a penalty, the coinsurance formula pays just (600,000 ÷ 680,000) × $420,000, or about $370,600 — roughly a $49,400 shortfall. The agreed value approach cost about $900 more in premium than the base form, but it eliminated that ~$49,400 coinsurance penalty and, against a depreciated ACV settlement of roughly $302,500 after the deductible, put an extra $115,000 in the gallery's pocket on this single fire.
How it affects your premium
Agreed value pricing hinges less on the raw limit and more on how confident the underwriter is in the number they are guaranteeing to pay. Key cost drivers include:
- Quality and age of the appraisal — a current, independent appraisal (typically within 12-24 months) lowers the rate because the carrier trusts the stated value; a stale or owner-supplied number invites a surcharge or refusal.
- Waiver of the coinsurance clause — because agreed value strips out the coinsurance penalty the insurer would otherwise rely on, carriers charge a modest load (often 3-8%) for taking on full valuation risk.
- Class of property being scheduled — fine art, classic autos, and specialized equipment carry higher agreed-value rates than ordinary building stock because market values are volatile and hard to re-verify after a loss.
- Catastrophe exposure at the location — wildfire, flood, or coastal wind zones raise the rate sharply since a guaranteed payout removes the carrier's depreciation cushion on a total loss.
- Deductible size — a higher per-loss deductible meaningfully offsets the agreed-value load, since the insured absorbs more of each claim.
- Loss history and security — sprinklers, alarms, and a clean loss run reduce the rate; prior claims push it up.
- Whether it is written as an endorsement or a standalone floater — bolting agreed value onto an existing package is usually cheaper than a monoline scheduled policy.
Common misconceptions
Myth: Agreed value guarantees I'll get whatever the item is actually worth at the time of the loss.
Reality: It guarantees the scheduled figure you and the insurer locked in at binding — no more, no less. If the market value has climbed above that number, you are still capped at the agreed amount, which is why appraisals should be refreshed and the declarations page updated periodically.
Myth: Agreed value and replacement cost are the same thing.
Reality: They answer different questions. Replacement cost pays what it takes to rebuild or re-buy new at claim time, while agreed value pays a pre-set dollar figure regardless of depreciation — the key benefit being that it also waives the coinsurance penalty.
Myth: Once I have an agreed value, I never have to think about my limits again.
Reality: Agreed value is typically re-underwritten each renewal and can require a fresh appraisal; a value frozen years ago can leave you badly underinsured on a total loss as prices rise.
Frequently asked questions
When does agreed value make the most sense for a small business?
Does agreed value eliminate the coinsurance penalty?
How is the agreed value figure actually set?
What happens if my property is worth more than the agreed value when it's destroyed?
Is agreed value available on regular commercial property or only specialty items?
Sources cited
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