Valued Policy
A property insurance policy where the insurer and insured agree on the property's value at inception, with that agreed amount paid in the event of a total loss regardless of actual cash value.
What It Is
A valued policy is a property insurance contract where the insurer and insured agree in advance on the value of the insured property. In the event of a total loss, the agreed value is paid without requiring proof of actual value at the time of loss. This contrasts with an open (or unvalued) policy where the loss payment is based on the property's actual value at the time of loss.
Some states have Valued Policy Laws (VPLs) that require insurers to pay the full policy limit on a total loss of real property, on the theory that the insurer accepted the premium based on that valuation and should not be permitted to dispute it after a loss. States with VPLs include Florida, Texas, Arkansas, and others.
Valued policies are standard in marine hull insurance (where vessel values are routinely agreed upon at inception) and fine arts insurance. In standard commercial property insurance, agreed value endorsements serve a similar function by suspending the coinsurance clause in exchange for the insured carrying coverage equal to an agreed percentage of value.
Why It Matters for Brokers
For brokers, valued policy concepts arise in multiple contexts: marine hull placements require agreed value negotiations, fine arts and collectibles coverage uses stated values, and valued policy laws in certain states can create unexpected coverage obligations for property insurers. Understanding valued policy principles helps brokers properly advise clients on property valuations and avoid disputes at the time of loss.
Real-World Example
A yacht owner insures a 65-foot motor yacht under a marine hull policy with an agreed value of $1.8M. During a hurricane, the yacht breaks free of its moorings and is destroyed. Under the valued policy, the insurer pays $1.8M regardless of the vessel's depreciated market value (which a surveyor estimates at $1.5M). The agreed value eliminates any dispute over the vessel's worth at the time of total loss.
Common Mistakes
- 1Confusing a valued policy with a policy at replacement cost — a valued policy pays the agreed value, which may be more or less than replacement cost.
- 2Not updating agreed values regularly, particularly in markets with rapid appreciation (marine, fine arts, real estate in VPL states), leading to underinsurance.
- 3Assuming valued policy laws apply to all property types in VPL states — most VPLs apply only to real property, not personal property or inland marine.
How brokerageaudit.com Handles This
Policy Checker identifies valued policy provisions and agreed value endorsements in uploaded policies. The system flags properties approaching their agreed-value review dates and tracks VPL requirements by state for applicable property placements.