What is the term for a coverage amount agreed upon by both the insured and the insurer for a policy?

The term "agreed value" refers to a specific coverage amount that has been mutually accepted by both the insured individual and the insurer when a policy is issued. This amount is predetermined and noted in the policy, providing assurance to the insured that, in the event of a loss, this agreed amount would be paid without any deduction for depreciation, regardless of the actual market conditions or the condition of the item at the time of loss. This is particularly important in situations where the value of the insured property may fluctuate over time.

In contrast, replacement value involves covering the cost to replace the item with a new equivalent without any deduction for depreciation. Market value looks at the price that the item would sell for on the open market, which can vary widely and may not reflect the insured's perspective on value. Actual cash value considers the replacement cost minus depreciation, which can result in a lower payout than what the insured originally believed their property was worth. Therefore, "agreed value" clearly stands out as a specific and predetermined coverage amount agreed upon by both parties.