We get asked about insurance all the time, and it’s not really surprising. Taking out a policy can be complicated and time-consuming and you can still end up not really knowing if you got the policy that’s right for you.

One of the most common things we get asked about is the difference between the market value and the agreed value of a vehicle when taking out a comprehensive car insurance policy. How are they different? Do they change over time? Is there a good reason to choose one over the other? As always, the answers to these questions depend on your circumstances and your car, but we can give you a good working guide to making the right decision.

Market value

Market value is the amount you could reasonably ask for your car on the open market in its current condition. It is not the same as its trade-in value, or the amount you might get for it from a particular buyer, like a restorer or collector. Your vehicle will generally depreciate over time, so you most likely won’t get the full value amount on your policy in the event of a total loss (a write-off) – BUT in theory you will be able to buy a car of the same age and standard, and in similar condition, with whatever you receive.

So what are the advantages of choosing to insure your car for market value?

First, market value insurance premiums are almost always cheaper than agreed value premiums, which is one of the main reasons they’re also much more common. Choosing market value will give you a reasonable premium and a reasonable return on the value of your car in the event of a total loss. It doesn’t have the certainty of a market value policy, but it will cost you less in the long term.

Agreed value

Agreed value is a fixed amount agreed on by the insurance company and the car owner. If you’re not insuring a new vehicle, this amount is worked out based on industry guidelines. For new cars, the purchase price is used as a basis for the agreed value.

In the event of a total loss, the insurance company will pay this fixed amount. Unsurprisingly, these policies present a greater risk to insurers and are generally more expensive then market value policies. So agreed value makes more sense for new cars or highly modified cars.

Simple, right?

Well yes, and no.

There are other factors you should consider when deciding what sort of policy to take out.

First, you need to consider your risk profile. What sort of driving do you do? Where do you live? Where do you park your car at night? What sort of security does it have? How long have you been driving? Had any accidents? All of these questions will factor into your premium, and your insurer will want to know all the answers.

You’ll also want to think about your financial situation and how the certainty of an agreed value policy weighs up against the higher premium it requires.

And of equal importance are any loans or car finance arrangements you have. A total loss doesn’t always erase your outstanding payments and you’ll need to consider any potential shortfall between the amount you may receive from an insurance payout and the amount you’ll need in order to pay off your loan AND replace your car.

Finally, certainty is a big consideration. Market value claims often require a lot of negotiation before agreement on a final payout amount is reached, and you can end up receiving a lot less than the figure on your policy. An agreed value policy provides a reliable payout value.

As always, if you want to know more about your car insurance, or if you don’t understand your policy, please give us a call and we’ll be happy to go through it with you!

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