What is a Valued Policy?
A valued policy is a type of insurance policy in which the full face value of the policy is paid out in the event of a total loss, regardless as to the actual value of the property covered by the policy. Life insurance policies are classically valued policies, and people may also purchase valued policies for property such as homes and vehicles. Many insurance companies offer valued policies to their customers, with premiums which can vary, depending on the value of the policy, the risks, and the region in which the policy is purchased.
When an insurance policy is not valued, the insured must demonstrate the value of the ruined property when damage occurs, and the insurance company makes a judgment to determine how much should be paid out. The goal of the insurance policy is to restore the insured to the financial situation which existed before the damage. For example, homeowners insurance would help someone rebuild a home which was destroyed by a fire. Under a valued policy, a face value is agreed upon, and in the event of total destruction, the insurance company pays out this face value.
Insurance companies are still entitled to investigate when a claim is made against a valued policy. The contract for the policy usually includes a number of exclusions, such as water damage in a homeowner's policy or suicide in a life insurance policy. In areas which are prone to natural disasters such as earthquakes, tornadoes, and flooding, valued policies often exclude these hazards, and separate coverage must be purchased for full protection. Consumers should definitely make sure that they understand the exclusions in their insurance policies so that they can purchase additional insurance, if necessary.
Valued policy insurance can most commonly be seen in the form of life insurance. Life insurance policies provide a payout in the event of death which is designed to create more financial security for survivors. For property such as homes and cars, an agreed value policy is not always necessarily a good thing. For example, if a home is insured under an old valued policy, the cost of rebuilding may be substantially more than that of the policy's value, thanks to rising costs for lumber and other building materials. Conversely, a valued policy could pay out more than the value of the property in some situations, which could be beneficial for the policyholder.
When shopping for value insurance policies, consumers should get information about exclusions which could weaken the coverage provided. They should also ask about waiting periods; many valued insurance policies have holding periods in which benefits will not be paid out. For example, a life insurance policy may not kick in until it has been held for two years. Other considerations could include the opportunity to bundle insurance policies, as many insurance companies offer discounts to people who purchase multiple policies, such as life, home, and car insurance.
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