Valued Contract

What Does Valued Contract Mean?

A valued contract is an insurance policy in which the insurer is obligated to pay a pre-specified amount to the insured in the event of a loss, regardless of the actual value of the loss. The pre-specified amount for valued contracts is typically the full value of the policy. Therefore, individuals with a valued contract generally receive complete reimbursement in the event of a loss.

Insuranceopedia Explains Valued Contract

Valued contracts differ from non-valued contracts in that the latter typically reimburse only the actual cash value of the loss. For example, if you have a valued contract for your auto insurance and you total your car after five years of driving it, the insurer will reimburse you for the car’s replacement value. In contrast, if you have a non-valued contract, the insurance company will reimburse you only for the actual cash value of the car at the time of the loss. Actual cash value accounts for depreciation, which can be substantial for cars. That depreciation gap is the reason many drivers with car loans or leases add GAP insurance to their policy, since the remaining loan balance often exceeds what a non-valued contract will pay out. Whether your policy is valued or non-valued can make a big difference in how much you collect after a claim, so it is worth checking the contract type when you compare car insurance companies.