Definition:Fixed-value policy
📜 Fixed-value policy is an insurance contract that assigns a predetermined monetary value to the insured subject at the time the policy is written, with that stated amount serving as the basis for any total loss payment rather than requiring a valuation at the time of loss. Often called a "valued policy," this structure is most prevalent in marine insurance, fine art insurance, and property insurance for unique or hard-to-value assets. The concept has deep roots in marine hull coverage, where the difficulty of appraising a vessel after it has sunk led to the longstanding practice of agreeing on a hull value upfront — a convention codified in the UK Marine Insurance Act 1906 and mirrored in marine insurance law across many jurisdictions.
🔧 Under a fixed-value policy, the insurer and the policyholder agree on the asset's value during the underwriting process, and that value is explicitly stated in the policy schedule. In the event of a total loss, the insurer pays the agreed amount without further debate over depreciation, market fluctuations, or replacement cost — unless fraud or material misrepresentation can be demonstrated. For partial losses, the claim is typically adjusted in the ordinary way relative to actual repair or restoration costs. This differs from an "unvalued" or "open" policy, where the sum insured represents a maximum limit but the actual loss must still be proven at the time of the claim. Loss adjusters working on fixed-value policies therefore focus primarily on confirming whether the loss qualifies as total rather than debating quantum.
💎 The practical significance of fixed-value policies is greatest where the insured asset is unique, illiquid, or difficult to appraise after damage — think museum collections, historic buildings, or specialized marine cargo. In several U.S. states, "valued policy laws" go further by requiring property insurers to pay the full face amount of the policy in the event of a total loss to real property, a legislative response to historical disputes where insurers collected premiums on high sums insured but then argued for lower payouts after a loss. Internationally, the valued policy concept remains a cornerstone of hull insurance and is also applied in inland marine and specie lines. For reinsurers, the fixed-value approach simplifies treaty calculations for total losses but requires careful attention to whether agreed values remain reasonable over time, especially for assets subject to significant appreciation or depreciation.
Related concepts: