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Agreed Value

A coverage option where insurer and insured agree at inception on the property's insured value, suspending the coinsurance clause for the policy period.

businessPublished 2026/06/07Last verified 2026/06/07

FAQs

Does agreed value mean the carrier will pay the full agreed amount for any loss?
Agreed value means the coinsurance clause is suspended — partial losses are paid in full (up to the policy limit) without a coinsurance penalty. Total losses are paid at the agreed value limit. However, the carrier still applies the standard policy terms: the deductible applies, coverage exclusions apply, and the payment is net of depreciation if the policy is written on actual cash value rather than replacement cost. Agreed value addresses the coinsurance problem specifically, not all coverage limitations.
What documentation is required to get agreed value treatment?
Requirements vary by carrier and account size. For smaller commercial properties, a completed replacement cost estimator (such as Marshall & Swift or 360Value) may be sufficient. For larger or higher-value properties, the carrier may require a formal appraisal from a certified appraiser. Industrial or specialty properties often require a replacement cost analysis from a qualified engineer or cost estimator. The carrier's underwriter will specify what they need to accept the stated value as the agreed amount.
What is the difference between agreed value and replacement cost coverage?
Replacement cost coverage pays the actual cost to rebuild or replace the property at current prices, up to the policy limit, without deduction for depreciation — the coverage amount floats with actual rebuilding costs. Agreed value is a fixed amount established at inception. In an inflationary environment where rebuilding costs increase, replacement cost coverage provides better protection because it tracks actual costs; agreed value coverage may fall short of actual rebuilding costs if the agreed amount was not updated. These two provisions address different coverage needs and are not mutually exclusive — a policy can have both.

Related Terms

  • Coinsurance Requirement

    A policy condition requiring coverage equal to a set percentage of replacement cost; under-insuring triggers a proportional penalty on partial loss recoveries.

  • Blanket vs. Specific Coverage

    Blanket coverage applies one shared limit across all insured locations; specific coverage assigns a separate limit to each location or item.

  • Rate Adequacy

    The degree to which current charged rates are sufficient to cover expected losses, expenses, and profit margin over the policy period.

  • Scheduled Rating

    Manual credits or debits applied by an underwriter to a base premium to reflect risk characteristics not captured by the standard rating algorithm.

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Agreed value is a commercial property coverage provision in which the insurer accepts the insured's stated value of the covered property as the agreed insurable value for the policy period, waiving the coinsurance requirement in exchange for the insured's commitment to insure the property to its full agreed value. When an agreed value endorsement is in effect, the coinsurance clause is suspended — a partial loss is paid dollar-for-dollar up to the policy limit, without any coinsurance penalty calculation.

How It Works / Why It Matters

Without agreed value, the coinsurance clause requires the insured to maintain coverage equal to a specified percentage of the property's replacement cost or face a pro-rata penalty on partial losses. Agreed value eliminates this penalty by creating a bilateral agreement: the carrier accepts the stated insured value as adequate, and the insured is bound to that value for the policy period.

To obtain agreed value treatment, the insured typically must submit a statement of values supported by a recent appraisal, a carrier-approved replacement cost estimator (such as 360Value from Verisk), or another acceptable valuation methodology. The carrier reviews the submitted value and either accepts it, negotiates an adjustment, or declines to grant agreed value treatment if the submitted value appears materially inadequate.

Once agreed value is in effect, two things follow. First, partial losses are paid in full without the coinsurance formula — the insured recovers the actual loss up to the policy limit. Second, total losses are paid at the agreed value limit, which the carrier accepted as the full insurable value. If construction costs have risen significantly since the agreed value was established and a total loss rebuilding cost exceeds the agreed limit, the insured bears the shortfall — agreed value does not guarantee full replacement cost beyond the agreed limit.

Agreed value must be renegotiated at each renewal or when there is a significant change in property value. Unlike replacement cost coverage (which pays to rebuild at current costs), agreed value locks in a stated amount that can become inadequate over time. The carrier may decline to renew agreed value treatment if the stated value has not kept pace with construction cost inflation.

In Practice

Agreed value is highly valuable to commercial property insureds for two reasons. First, it eliminates the coinsurance trap — the risk of a partial loss being penalized because values have drifted below the coinsurance threshold. Second, it removes uncertainty about loss recovery: an insured with agreed value knows precisely what the carrier will pay for a given loss, without needing to calculate whether coinsurance applies.

Agents strongly prefer agreed value for commercial property clients because it eliminates the most common source of coverage gaps and E&O claims related to commercial property. A client who suffers a $500,000 partial loss and is told they receive only $375,000 because of a coinsurance penalty they did not understand — on a policy the agent placed — is a significant E&O exposure. Agreed value, properly documented at inception, eliminates that risk.

The premium for agreed value coverage is typically slightly higher than for comparable coverage without agreed value, reflecting the carrier's acceptance of the stated value without an ongoing coinsurance protection mechanism. The rate difference is usually modest and easily justified by the coverage certainty it provides.

Stated value is a related but distinct concept, most common in personal and commercial auto physical damage. Under stated value, the insurer pays the lesser of the agreed stated value or the actual cash value at the time of loss. This is different from agreed value — stated value does not guarantee payment of the full stated amount. Agents and clients sometimes confuse the two terms; clarifying the distinction prevents coverage expectation mismatches.

Blanket coverage with agreed value provides the broadest property protection for multi-location accounts: a single blanket limit agreed to represent the full insurable value of all covered property, with no coinsurance penalty risk. This combination requires the most rigorous upfront valuation work but provides the clearest recovery certainty.

Related Concepts

Coinsurance requirement is the provision that agreed value suspends — understanding the coinsurance mechanism is necessary to understand why agreed value provides meaningful coverage enhancement. The statement of values submitted to obtain agreed value is the same documentation used to manage blanket vs. specific coverage structures.