Agreed or market value: Which is best for car insurance?

When you get the keys to a new set of wheels, the last thing you want to think about is having a fender bender or claiming on insurance. But before you sign any contract, it’s important to consider the type of comprehensive car insurance policy you might need.

If your car is stolen or written off in an accident, the insurance you have can have a big impact on the payout you’ll get in the event of a claim.

Here, we look at what it means to insure for market value or agreed value, and the reasons why you’d choose one policy over the other.

Agreed or market value – what does it mean?

When you take out comprehensive car insurance for a new or second-hand vehicle, you’ll usually have the option of an agreed value or market value policy.

Agreed value is a fixed dollar amount that you negotiate with the insurer to insure your car for and it’s worked out based on industry guidelines. It’s often the best option for brand new cars, or rare vintage or classic vehicles.

Market value refers to the amount that your car would fetch if it sold at the time of the accident – and it’s the most common way insurers value a car. They’ll look at your car’s make, model, age and condition to calculate its value in the current market.

Pros and cons for agreed value policies

Pros

• A guaranteed payout in the event of total loss, but read the PDS closely and confirm this with your insurer before taking out the policy.
• Can protect you from the financial impact of depreciation (especially with new cars, which depreciate very quickly).
• Peace of mind – if the worst-case scenario happens, you’re covered.

Cons

• Higher premiums, because they offer a guaranteed payout in the event of a total loss.
• You’ll need to do a time-consuming and possibly costly appraisal prior to insuring.
• The insurer may switch you to a market value policy at renewal (read the fine print!) or they may lower your agreed value amount at renewal time, so be aware that you may need to re-negotiate the agreed value each year.

Pros and cons for market value policies

Pros

• Usually offer lower premiums which can be more affordable if you’re on a budget.
• It’s a more common choice across all levels of cover.
• Policies are quite flexible so you can opt for comprehensive or liability coverage, depending on your needs.

Cons

• There’s less clarity over payouts than in agreed value policies.
• The insurer values your vehicle at the time of the claim and takes depreciation into account so the older the car is, the less it’ll be worth (which may mean a smaller payout).
• It’s easier to be underinsured, meaning you may be out of pocket to replace your car if it’s stolen or written off.

Which option is right for you?

When choosing between agreed or market value, you’ll probably want to ask yourself a few questions about your car:

1. What is my car worth? If your vehicle is a rare classic car or a high-value car that’ll cost a lot to replace, agreed value may be best for you.
2. What’s my budget? Market value policies are often cheaper, but the payout may be less. Also, the cheapest policy may not always be the best value policy, so compare!
3. What’s my appetite for risk? If your car’s value is higher than the market value, market value policies can leave you underinsured.
4. What are my needs? What coverage do you require? Do you need roadside assistance or rental car reimbursement?
5. Do I understand the PDS? Ask a lot of questions before taking out the policy as it’s easy to ‘set and forget’ your insurance and that can cost you.

Evaluate and compare

Taking time to evaluate your needs and compare policies is key when choosing between agreed or market value car insurance. You’ll want to look at both types of policies and consider which one that may be best for you.

Want to know more about the range of policies available to compare through Choosi? Call to compare quotes or visit us at Choosi.