Agreed Value or Market Value: Which Car Insurance Option is Right for You?

Purchasing a car can be an exciting experience. It can also be quite nerve-wracking. Owning your own car can grant independence and freedom but is also a big responsibility, especially when it comes to car insurance. When you enter the process hastily, you may end up with less cover than you thought. However, when you know what to expect and understand the process and the differences between your options, you can sign on the dotted line with your head held high. 

We aim to give you such confidence by helping to explain the differences between agreed value and market value. By the end of this blog, you will know how to choose a cover that suits your situation.

Understanding Agreed and Market Value

When shopping for vehicle cover, you want to ensure your car is insured for enough because if you are ever involved in an incident, you would want to get back on the road as quickly as possible. This would involve your insurance claim being paid and repairs being done. However, what if your car is damaged beyond repair? What if your vehicle is stolen and not recovered? Both of these examples are deemed a total loss and this is where your insurance policy’s agreed or market value comes into play.

What is agreed value and market value?

When you are involved in an auto accident, and your car is declared a total loss, the insurer will pay out the value that the policy contract terms stipulate. This will either be an agreed value or the market value depending on the cover type you have chosen. This is also the basis of settlement if your vehicle is stolen and not recovered or stolen and recovered but beyond economic repair.

Let’s take a look at two situations to better understand the difference between agreed and market value.

An example of agreed value and market value

For market value, let’s say that Michael purchases a vehicle for $25,000. He’s had the car for five years. In the fifth year, he has an accident, and the car is written off. The insurance company will get an independant pre-accident valuation completed on the vehicle. This value will reflect the market value of the vehicle at the time of the claim and is the amount you will receive upon settlement. If you disagree with the value provided you can obtain your own independent pre-accident valuation on your vehicle, at your own cost, and the insurer can re-assess this revised settlement offer.

If Michael had an agreed value basis of cover, then whatever the agreed sum insured noted on your schedule is at the time of the loss, is the amount that the insurer would agree to pay if the vehicle was deemed uneconomic to repair and therefore treated as a total loss.

Key takeaways

There are a few key differences between market value and agreed value.

• How much your car can be insured for. You will initially advise the insurance company of the estimated value your vehicle is worth. This is for rating purposes, so it’s important that you determine what your vehicle is worth currently in the market, also considering how many kilometres are on your odometer when you are comparing the estimated value of your vehicle. Beyond that, the insurance company will settle a total loss claim based on what the market value is of your vehicle at the time of the loss. If you choose an agreed value, then a sum insured is agreed at the start of the 12 month insurance policy term. Should a claim arise where your vehicle is deemed a total loss, the agreed value will be paid. When setting the sum insured of your vehicle, you should consider any after-market modifications and/or accessories that have been added.
• Premiums are different. The agreed value option attracts a higher premium, but provides you with some certainty at claim time as this will be the amount you are paid in the event of a total loss claim. Market-value is based on whatever the market is paying for your vehicle at the time of loss.
   

Market vs. Agreed value: which is right for you?

Now that we know the difference between market value and agreed value insurance, let’s look at which policy might be right for you.

Agreed value

We would love to have certainty on the value paid out for our vehicle in the event of a total loss. This means you can get back on the road, get to work or take the kids to school. However, the agreed value can cost you more money to have, so if you are budget minded, this may not be the best option.

Market value (the cost-friendly option)

Having market value based vehicle insurance should cost a little less than the agreed value option. Remember, the insurer will obtain a pre-accident valuation at the time of loss and the value may differ from the price you paid for the vehicle originally. This means you may not be able to purchase a replacement car to the same quality as the one you had when your claim is paid out.

Agreed value gives you certainty - additional details

One of the primary attractions of agreed value is that you will always know what your pay out will be. There is no second-guessing as there is with market value. The value of your vehicle is adjusted at the beginning of each insurance year. Your insurance renewal documents should show you what the new value is. This is the value that will be agreed for the next period of your insurance unless you advise the insurer otherwise.