Its a given that everybody wants to save money on insurance, and classic insurance is no exception. Not infrequently someone gets the idea of lowering their Agreed Value in order to cut down the premium. You can cut it down a LOT on a classic insurance policy because the premium for such policies is often loaded on the physical damage portion. Liability charges tend to be very light. So the savings can be both substantial and tempting.
Don't do it. Here's an example of why: Lets say you have a nice older Porsche 911S that is worth about $100,000. You seldom drive it and consider your liability risk to be negligible, but the law makes you insure the thing, so you need to find coverage. To keep your costs down on this seldom-driven weekender, you find someone who will insure it for an Agreed Value of ... lets say $50,000. You just saved a bundle on your insurance and you still have full Liability coverage for when you want to drive it.
Here's where you get into trouble: You just made it very easy for a minor or moderate traffic incident to turn your car into a total loss. The parts and labor to repair that car are going to add up VERY fast. Since a car is declared a total loss if only a fraction of its insured value is needed to repair it, you could be looking at losing a $100,000 car after only perhaps $40,000 in damage. With an older car, you may have a good shot at getting the thing repaired on a budget with parts you and your internet forum buddies help you scrounge up. But for those who try this with a newer automobile, the situation is much more grim.
When the classic insurance company does write you a check... if the car is financed you'd better not owe more than the lowball value you attached to the car. Certainly buying another one with the insurance money is also out of the question. And guess what? The classic insurance provider is going to sell your car at a salvage auction. They will make almost all of their money back since the car was undervalued. Nobody, not even the insurance company, likes that outcome. Classic insurance providers are not in the business of making money off of vehicle salvage sales. The bad will that comes from this sort of event is not something they want to deal with. Everybody loses.
And speaking of salvage, there's another way this whole thing can go down: The consumer can buy the salvaged vehicle back from the insurance company. Its possible the amount of money left over after the vehicle is bought back will be enough to repair the car. The consumer has a repaired auto. Except the vehicle now has a salvage title, which of course torpedoes its resale value.
To avoid this mess when a policy is first purchased, classic insurance companies will typically insist on some form of co-insurance threshold. In other words, they won't let you lowball the value beyond a certain point. Consumers may think the classic insurance provider is trying to dig more money out of them, but in the end the company is doing the right thing for the consumer, who is setting themselves up for an ugly fall.
Here's Another Way To Cause The Same Problem
Lets say you insure your classic car for the right Agreed Value, but then you don't keep up with it. Over time this can cause exactly the same problem. If market value goes up, raise your Agreed Value along with it. If values are skyrocketing fast, don't be shy about calling your agent more than once per year. There is no law that says the value can only be increased at policy renewal. Do it any time, as many times as you need.
And yes, we know... increasing your value will increase your premium. More insurance means more cost. But look at the mess you could be in if you do this wrong. Saving a few bucks and crossing your fingers can and does lead to personal financial disasters. Pay attention, don't cheap out and don't let it happen to you!