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Q4) How is a horse’s value determined for insurance purposes?
Mortality insurance pays for the "cash value" of the horse at the
time of death but not more that the "insured value." The "cash
value" and the "insured value" are two different things and are a
distinction that must be understood. If a horse has an insured value of $50,000
(and the owner has been paying premiums based on that amount), this does not
mean the owner will receive $50,000 if the horse dies. The owner will receive
the "cash value" of the horse at the time of its death which could be
significantly less than its insured value.
Traditionally, it has been difficult to determine the actual cash value of an
insured horse. The owner of the horse has generally determined the horse's
"value" and insured him accordingly, but the terms of most policies
require that the insurer pay out the "actual cash value" of the horse
at the time of his death.
This requirement represents an attempt on the part of the insurance companies
to guard against two scenarios: first, that in which the value of the horse
drops considerably during the term covered by the policy, and second, that in
which an owner intentionally "over insures" a horse with the intention
of killing it to collect on the policy.
Since the owner's estimate is not always reliable, insurers look for some
form of objective data to help them determine the actual cash value of a horse.
This could be the price paid for the horse at auction, or the estimated value of
the horse based on its original value plus the added value of its training,
produce, or show record. The services of an equine appraiser are often used to
arrive at an objective value for an individual horse. An equine appraiser does
not have to be licensed, but he should be well-informed about horses and he
should be conversant with the current market.
Some policies specify that the horse's value be determined at the time of
death - by the appraiser, if the owner can't prove the horse's value.
Some policies require that the owner prove the value of the horse every
quarter.
Some policies have an agreed-upon price, or an "agreed value,"
which means that the insurance company commits to pay that stated amount if the
horse dies.
It is possible to insure a horse for more than its worth, but it is becoming
more difficult to do this, because that worth is generally based on the purchase
price. If an owner believes that his horse is worth more than the purchase
price, he will need to produce evidence of increased value based on training,
breeding records, show records, and appraisals. Then the insurance company must
agree that the horse's value has increased to a specific amount. A homebred
horse is generally insured to twice the value of the stud fee.
One of the best ways to avoid this situation from the beginning is for the
company to have knowledgeable agents who can help horse-owners purchase
appropriate coverage for their animals. If the agent was involved in the initial
purchase of coverage, and substantiated the value at which a horse was insured
at that time, the insurance company may be more likely to pay any claim in full.
But even this is not a guarantee of full payout. Agents are sometimes unwilling
to compromise their relationship with the owner, or risk their expected
commission, by placing a lower value on a horse than that placed upon it by its
owner.
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