What is meant by "agreed value condition" in property insurance?

The concept of "agreed value condition" in property insurance refers to a stipulated sum that both the insurer and the insured have mutually accepted as the property's value at the time the policy is issued. This predetermined amount serves to satisfy the coinsurance requirement, which assures that both parties are clear about the property’s worth, thereby avoiding disputes during a claim.

By utilizing an agreed value condition, the policyholder is protected against potential depreciation or market fluctuations that might lower the property’s actual cash value over time. It ensures that in the event of a loss, the claim payout will reflect the agreed-upon value without adjustments for depreciation, as long as the claim does not exceed this agreed amount. This arrangement can provide peace of mind to property owners, knowing that they will receive fair compensation based on a value that both they and the insurer have accepted.

Understanding this definition is crucial for those preparing for adjuster licensing, as it demonstrates how insurance contracts can be structured to protect both parties effectively.