WHAT IS STATED AMOUNT PHYSICAL DAMAGE?

Unlike private passenger type vehicles commercial trucking physical damage is often insured on a “stated amount” basis.

Physical damage premiums for private passenger type vehicles are ordinarily determined based on the original cost of the vehicle and its age.  This is practical largely because these vehicles depreciate in an easily predicted fashion.  Heavy commercial vehicles, however, are designed to outlast their engines.  Truck tractors, often traveling well in excess of 100,000 miles per year are designed to have their engines replaced regularly.  The value of the vehicle therefore is heavily dependent upon how recently the engine has been replaced.  A four year old tractor, for example, with a new engine, is worth considerably more than a similar four year old tractor with similar mileage and with its original engine.

Since it is more difficult to determine the worth of heavy commercial vehicles based on original cost and age, truck insurers have developed an alternative method, “Stated Amount” for providing physical damage coverage and determining premium.  The insured “states” the maximum vale of the vehicle and the premium is determined as a percentage of that value.  That percentage decreases as the deductible increases. 

In general lower valued vehicles pay a higher premium percentage than more valuable vehicles because damage that would be a partial loss on a high valued vehicle could be a total loss on an older, lower valued vehicle.

The insured does not automatically receive the stated amount in the event of a loss.  The amount paid is always the least of three possible values:

  • The actual cash value of the vehicle at the time of the loss
  • The cost of repairing or replacing the vehicle with one of like kind and quality
  • The stated amount of insurance for the vehicle

Therefore the most that the insured could collect in the event of a total loss would be the stated amount. 

On a stated amount basis truckers must value their vehicles in advance.  At each renewal the values must be reevaluated.  Automatic coverage is made more complex because of the need for timely vehicle valuations.  Professional underwriters will require insureds to justify in advance valuations that differ significantly from average expectations.  A little time spent resolving these issues when the vehicle is initially insured can avoid serious claims settlement problems following losses.

Truck insureds and truck claims adjusters, however, both favor the stated amount approach.  They like the idea of having an automatic cap on the value of the vehicle.  It makes claims settlement negotiations less contentious.  It is also easier and more accurate to compare competitive quotes on a percentage of value basis.

WHAT IS PHYSICAL DAMAGE INSURANCE?

Operators of commercial vehicles, such as truckers, need a number of insurance products.

Automobile Physical Damage insurance covers the damage to, disappearance, or destruction of actual automobiles and/or their equipment, such as tractors, trailers or semitrailers, trucks, or private passenger types of vehicles.  Equipment does not include personal effects (clothes, eyeglasses, etc.)

Covered autos are determined by designation symbols that must be tailored to whether the automobile that is to be insured is owned, rented, leased, hired, or borrowed and the type of vehicle.  Premiums usually depend upon the type and age of the vehicle, coverages chosen, garaging location, driver information, deductibles chosen, and loss experience

Such coverage is divided into two major components “collision” and “all perils other than collision.”   Collision covers striking another object (including other vehicles) and overturn of the vehicle.

“All perils other than collision” include loss by fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, falling objects, or the sinking, burning, collision or derailment of any conveyance transporting the auto.  These coverages can be purchased on an all inclusive or comprehensive basis, or a basis where each peril is specifically described (called named peril or limited specified causes of loss.)  In both cases there are some perils which are excluded from coverage.

Excluded perils for which no physical damage insurance coverage is ordinarily provided include nuclear hazards, war or military actions, organized racing or demolition contests, wear and tear, road damage to tires, and damage to most electronic equipment not required for the operation of the vehicle.

Although not mandated by law, like automobile liability insurance, physical damage is ordinarily required by financial institutions that loan money to purchase automobiles.  Since the automobile is used as collateral for the loan, the lender needs to make sure that the collateral remains unimpaired.  The insured’s own equity in his or her vehicle is also protected.

There are ordinarily separate deductibles for the “collision” and “other than collision” coverages.  Deductibles are the portion the insured must pay in the event of a loss.

The amount of coverage is ordinarily limited to the cost of repairing or replacing the damaged or stolen property or its value less depreciation.  If an insurer pays a physical damage claim that is the fault of someone else then the insurance company upon paying the physical damage claim assumes the right to recover the cost from whoever caused the claim.