Legal Definitions - valued policy

A valued policy is a type of insurance contract where the insurer and the policyholder agree upon a specific, fixed value for the insured property at the time the policy is issued. This agreed-upon value is the amount that will be paid to the policyholder in the event of a total loss, regardless of the property's actual market value at the time the loss occurs.

This contrasts with an "unvalued" or "open" policy, where the value of the lost property is determined after the loss has occurred, often requiring appraisals or market assessments. Valued policies are typically used for items that are unique, difficult to appraise after a loss, or have a subjective value, such as fine art, antiques, custom-built items, or rare collections.

Here are some examples illustrating a valued policy:

• Example 1: Insuring a Rare Painting

  An art collector purchases a rare 17th-century painting for their private collection. Given its unique historical significance and fluctuating market value, the collector and their insurance company agree on a specific insured value of $5 million when the policy is taken out. Years later, the painting is completely destroyed in a house fire. Because it was covered by a valued policy, the insurance company pays the collector the pre-agreed $5 million, without needing to conduct a new appraisal of the painting's market value at the time of the fire.

  This illustrates a valued policy because the payout for a total loss was fixed and agreed upon at the policy's inception, simplifying the claims process and avoiding potential disputes over the painting's value after its destruction.

• Example 2: Custom-Built Luxury Yacht

  A client commissions a bespoke, luxury yacht, designed and built to their exact specifications. Upon completion, the owner and the marine insurance provider agree to insure the vessel under a valued policy for $15 million. Several years later, the yacht encounters a severe storm at sea and is declared a total constructive loss (meaning the cost to repair it exceeds its insured value). Under the terms of the valued policy, the insurance company pays the owner the full $15 million, which was the agreed-upon value from the start.

  This demonstrates a valued policy's utility for unique, custom-built assets where determining a precise market value after a catastrophic event could be complex and contentious. The pre-agreed value ensures a clear and prompt settlement.

• Example 3: Vintage Car Collection

  A passionate enthusiast owns a collection of five extremely rare vintage automobiles, each meticulously restored and maintained. To insure these unique vehicles, the owner opts for a valued policy for each car individually. For instance, a 1960s classic sports car is valued at $2.5 million, and a 1930s luxury touring car is valued at $1.8 million. If the 1960s sports car is later involved in an accident that results in its total destruction, the insurance company will pay out the agreed-upon $2.5 million, regardless of any minor market fluctuations since the policy began.

  This example highlights how valued policies provide certainty for high-value, unique items within a collection, where each item's specific value is established and agreed upon upfront, preventing the need for post-loss valuation of irreplaceable assets.