What is the definition of 'agreed value' in motor insurance?

The definition of 'agreed value' in motor insurance refers to a pre-determined value for the insured vehicle that is mutually accepted by both the insurer and the policyholder at the start of the policy. This value is documented in the policy and serves as the basis for any claims made. In the event of a total loss, such as theft or irreparable damage to the vehicle, the agreed value is the amount that will be paid out to the insured without consideration for depreciation or market fluctuations.

This approach is particularly beneficial for classic, vintage, or specialized vehicles, where determining an accurate market value can be challenging due to their unique characteristics and the potential for appreciation over time. By establishing an agreed value, both parties have clarity regarding the compensation that will be provided in the event of a claim, which helps avoid disputes and provides peace of mind to the policyholder regarding the value of their asset.

Other choices, while related to vehicle valuation, do not accurately represent the concept of 'agreed value.' The current market value may fluctuate and does not guarantee a fixed payout amount. The maximum payout amount and vehicles’ age and condition approaches do not capture the essence of a pre-established agreement between the insurer and the insured regarding the specific value of the vehicle