What is the purpose of Agreed Value in an insurance policy?

Agreed Value in an insurance policy serves the purpose of specifying a fixed amount that the insurer will pay in the event of a total loss, without taking into account depreciation. This means that when a loss occurs, the policyholder receives the agreed-upon value regardless of the actual cash value of the property at the time of the loss. This is particularly beneficial for items that may not depreciate significantly over time, or for unique and high-value items where determining a fair market value after a loss could be complicated and potentially unsatisfactory for the insured.

The fixed nature of the payment offers certainty and financial stability to the policyholder, avoiding disputes over valuation and ensuring that they receive a predetermined compensation in line with the coverage agreed upon when the policy was established.