Commercial auto insurance policies pay the lesser of 1) the actual cash value of the damaged or stolen vehicle, 2) the cost to repair the damage to the vehicle, or 3) the cost to replace the vehicle with a similar one. So whichever one of those three categories costs the least amount of dollars, that’s what they’ll pay you.
But there are often some additional limitations that can sneak in on you.
One such limitation is the Stated Value Limitation.
What is a Stated Value Limitation? It is a cap on the amount that your policy will pay.
For example, let’s say you have a 2009 Ford F150 Regular Cab insured with a $5,000 Stated Value Limitation. That means that $5,000 is the maximum your policy will pay in any claim regardless if it costs more to repair, replace, or pay for the actual cash value of the damage.
Is this a problem? It may or may not be – it just depends on if you’ve accurately stated the value of your truck. Is $5,000 enough? If the real value of your truck is $7,500, then it’s a problem, a $2,500 problem!
We all want to save money on our insurance. We don’t want to over-insure our stuff. But we also don’t want to under-insure our stuff. The temptation – in order to save money – is to low-ball the value of your stuff so your insurance costs less. I’m here to tell you: don’t do it! It’s not worth it. You will not be happy if you insure your truck for $5,000, it gets totaled, and it turns out the minimum cost to replace your truck is $7,500. You will not enjoy getting underpaid for your truck, and you will be especially upset knowing that the cost to be properly insured would have been probably less than $100 per year.
Yep, the Stated Value Limitation can be an ugly beast. But the good news is there are two ways to make sure your don’t get stuck with a Stated Value Limitation
One – use accurate values when insuring your vehicles. How do you do that? Check Kelley Blue Book or Edmunds. Both give a good estimate of how much your vehicle is valued at. Make sure you base the value on the Private Party Value – NOT the Trade In Value. The Trade In value estimates how much you would get if you traded your vehicle in to the dealer as you’re buying a new vehicle. Trade In Values are far too low, and don’t reflect the situation you’re going to be in in an insurance claim. The Private Party Value is the most accurate value.
Two – remove the Stated Value Limitation on your insurance policy. The difference in pricing is minimal. Without the Stated Value Limitation, there is no cap on how much will be paid, other than the conditions mentioned in the first paragraph above. Ask your agent if you have a Stated Value Limitation on your policy and what it would cost to remove it. Sometimes you’re stuck with it. If so: refer to rule one.
Commercial auto insurance has many more restrictions and limitations than most people think. You get what you pay for. It’s only a bummer when you don’t know what you’re paying for. Be in the know and avoid insurance surprises!
Gillespie Insurance Services helps people and businesses in California, Arizona and Nevada.