Car Insurance Market Value vs Agreed Value

When requesting a quote for a car insurance policy you generally have the choice between insuring your vehicle for its market value or for an agreed value. There are pros and cons to both types of cover.

What’s the difference between market value and agreed value?

Market value

Market value is a recognised insurance industry term for what your car is worth on the open market at the time of making a claim. It is determined by your insurer and based on a number of factors. It’s important to note that it’s not:

• the trade-in value
• what a particular purchaser would pay for your car
• the cost of replacing your existing car with a brand new one.

So, if you insure your car for the market value, the price you will receive from the insurer in the event that your car is written off or stolen will be the price that your insurer estimates your car was worth just before the accident or theft.

When estimating the market value of your car, your insurer will take into account a range of factors, including:

• condition
• age
• make and model
• how many kilometres it has travelled
• its service and accident history.

Things to also consider:

• Premiums tend to be lower than insuring your car for a higher agreed value.
• You have no say around the amount that your car is insured for.
• There is a level of uncertainty about what compensation you will receive from your insurer if your car is written off. If you dispute the amount your insurer assigns your vehicle’s worth, you can speak with the insurer or if the dispute escalates, to the Australian Financial Complaints Authority (AFCA).

Agreed value

Agreed value is a recognised insurance industry term for the fixed sum amount discussed and agreed with your insurer when taking out or renewing a policy. An agreed value car insurance policy generally has higher car insurance premiums. This is because the agreed value for your car is usually higher than what it would sell for on the open market (market value).

Things to also consider:

• Agreed value can provide certainty about what compensation you will receive from your insurer if your car is written off or stolen. This may be particularly useful if you have a car loan or other form of finance still owing on the car.
• You have a say around the amount that your car is insured for.

Explore more: How to find the market value of your car

How does my car insurance value affect a claim?

If you make an insurance claim and the insurer decides to write off your car, the difference between agreed value and market value car insurance becomes apparent. If you have an agreed value policy, then your insurer would likely pay you the amount that you and the insurer had agreed the car was worth. If you have a market value policy, the insurer would determine how much your car was worth on the open market and pay you that amount.

For example: you bought a new car for $30,000 and you have an accident. The car is written off by the insurer.

• If insured for an agreed value of what you paid for it–$30,000, then your insurer would pay you the agreed amount of $30,000.
• If insured for market value, then your insurer would likely pay less than the purchase price of $30,000. The reason for this is that depreciation kicks in as soon as you purchase the car, and gets to work quickly. Your car is subsequently worth less and less as it ages, meaning that the amount your car is insured for under a market value agreement also reduces every day.

Compare Comprehensive Car Insurance

Is market value or agreed value car insurance better?

Deciding between agreed value or market value car insurance may boil down to two things: the car you drive and how much you want to spend on premiums. If your car is reasonably modern or has custom modifications and you would like to have enough to replace it in the event of an accident, you might choose to take out an agreed value policy. However, you may want to opt for market value coverage if your car is closer to retirement age or has lower value and you would rather pay less in premiums in return for a lower payout.

Ultimately, there is no one right answer when it comes to deciding between agreed value and market value car insurance. It’s important to weigh up the benefits and drawbacks of each type of cover that suit your individual circumstances before making a decision.

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