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Auto Insurance Valuation 101

When you buy a classic or collector car, you're thinking about restoration, and showing it off at clubs, auto shows, and other automotive events. The last thing on your mind is likely to be insurance, but eventually you will have to get a car insurance quote and when you do, it's important you understand valuation and insurance.

There are three basic ways insurance companies figure the value of cars and trucks: actual cash value, stated value, and agreed value. Here's a breakdown of each:

Actual Cash Value is the method used by mainstream insurers who cover most cars in the United States. It's based on the blue book value of your vehicle, minus any depreciation. Since cars begin to depreciate the moment you drive them off the lot, this can make an accident with a new car incredibly expensive, as the depreciated value may be less than the amount of the loan or lease on the car. This is why auto leases often include gap insurance (which fills the gap between the insurance policy amount and the lease). When your coverage is based on actual cash value, an insurance payout is "up to" the coverage limit.

Stated Value is a method of valuation used by insurance companies for some performance and collectible vehicles. It's better than actual cash value, because it does allow you to state a value for your vehicle above the blue book value (though you must be able to support it), but the coverage payout is still "up to" the limit, which means the insurance company can pay less than the full value if they choose.

Agreed Value is the best option for antique, collectible, and exotic performance cars, because you and the insurer come to a value together. In this way, you'll be able to cover any restored parts, fine-tuned engines or rare vehicles for their real value, though in some cases appraisals may be required. With agreed value policies, a payout when your car is totaled is equal to the full coverage value.

Drawbacks of Agreed Value

While it would seem that an agreed value policy is the best way to go, there are some drawbacks to it. Because most such policies are offered by specialty insurers that handle only infrequently driven vehicles, in order to qualify you will probably have to accept the following restrictions:

You must be an experienced driver, usually at least 25 years old, or with a minimum of ten years behind the wheel.

You will have to limit your driving to a specific amount of miles per year, generally between 2,500 and 10,000.

You must keep your car in a locked garage when not in use.

You must have a clean driving record.

You must have another car, properly insured, for daily driving.

Do these rules make agreed value policies a bad idea? It depends. If you have a collectible or exotic car, chances are you don't drive it every day, and already keep it in a garage rather than on the street, and for cars with high value, that don't fit into the box of mainstream insurance, this is often the least expensive option.

The Show-Me Mustang Club was founded in 1986 by a group of Mustang enthusiasts to provide a medium for the exchange of ideas and information about the care and maintenance of America’s first pony car. The club has evolved from friendships and camaraderie into a large group of people of all ages who enjoy getting together to share stories, problems and dreams of their prized classic and soon to be classic Mustang.