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Market Value & Agreed Value: What’s the difference?

6 min read
20 Jul 2016

When you’re buying insurance for your vehicle, it’s hard to know how you can find the best deal. On top of that, it can be really confusing to understand all the jargon. Today, we’re going to focus on just one aspect of car insurance: market value vs agreed value.

We’ll explain what insuring your vehicle at market value or agreed value means, the possible benefits, and how they impact your car insurance policy.

What is market value car insurance?

Insuring your car at market value means it’s covered for what it’s currently worth ‘in the market’ – or at least, what it was worth before it was damaged.

The car’s market value is based on what similar cars in the same condition are worth, as well as the average price if you were to replace that set of wheels today. The value even takes mileage into account.

Say you bought a car two years ago and back then it was worth $8,000. Now you make a claim and the current market value may only be $7,000, and this is what you’ll receive from the insurer when you replace your set of wheels.

You may still need to pay a car insurance excess, a one-off payment to be made to your insurer before your claim can be paid out. That amount will vary, depending on what is agreed between you and your insurer when taking out the policy.

The benefits of market value

Market value policies are generally cheaper than agreed value ones, which can help save money for those who are happy to insure their car for what the market would pay for it. Another advantage of the market value car insurance is that it adapts to match the cost of replacing your car. If the car’s value changes in a couple of months or years, your insurance will reflect this. This way, you know that you can replace that vehicle with something similar, with the cost covered by your insurer.

However, it does mean you’ll get less money back over time as the vehicle depreciates, which is a drawback of market value car insurance. This is where an agreed value policy may be beneficial.

What is agreed value car insurance?

The agreed value is an amount both you and your provider consent to insure the car for.

Perhaps you own a 10-year-old Commodore which holds a special place in your heart, so you decide to insure it for an agreed value of $10,000 – above and beyond what it’s actually worth in terms of market value.

If the insurer agrees, you can do that! The insurer will owe you this amount if you successfully claim within your contract period.

It’s important to note that agreed value policies aren’t available for all vehicles. Each insurance company has their own rules on when they will offer it and how much higher or lower (compared to market value) they will insure the car for. If your car has pre-existing damage, this might affect whether you can get agreed value.

A key difference between market value and agreed value is you get whatever amount of money back in a claim that you agreed on with your insurer because that policy pays the same regardless of your vehicle’s depreciation (minus any excess payments you may owe).

Insuring your car at agreed value does, however, have a few caveats.

  • It affects your premiums. You can insure your car for more than it’s worth. However, if the cost to replace the car is greater for the insurer, you may end up paying more in premiums. You can insure the car for less than what it’s worth for a cheaper premium, but you might not be adequately covered.
  • The agreed value can change. The amount you insure your vehicle for is honoured for the term of your insurance policy. Your policy probably gets renewed every year, though, and then your insurer may propose a new agreed value which will typically be less than the first agreed amount.

The benefits of agreed value

The key benefit of an agreed value car insurance policy is that it provides more certainty on how much the car is worth and what you’ll get back (minus any excess payments) should you need to make a claim.

Couple driving in SUV

Market value vs agreed value: which is cheaper?

There are a number of factors that impact a premium and the vehicle’s value is just one of them. It’s important to shop around and compare your options.

Though market value policies are normally cheaper, agreed value can be less expensive if you insure your vehicle for less than it’s actually worth, resulting in a cheaper premium..

And if you want it to be covered for more than it’s worth, you’ll pay extra in premiums. Both of these situations require the insurer to agree to the lower or higher value you wish to insure your car for.

The cost of a market value insurance policy largely depends on how much your car is worth in the first place, amongst other factors. It’s important to compare market value options vs agreed value policies to see which option is right for you.

If saving on car insurance is your main priority, check out our 6 ways you can save on car cover.

How market value and agreed value affects your claim

The biggest difference with market value vs agreed value is how much money the insurer will give you to buy a replacement.

With a market value policy, the value typically goes down as it depreciates, so you’ll tend to get less back in a claim the older your vehicle is. In the case of a total write-off, this might mean you’re left with some out-of-pocket expense if your payout doesn’t quite match the cost of replacement.

You could still face the same issue if the agreed value is less than what the average cost of your now sadly wrecked car amounts to. Over time  it’s likely your car will lose value, meaning an agreed car insurance policy will probably cover the cost of a replacement, though you might be paying a higher premium.

In either case, if you own the car outright, you get the market value or agreed value paid to you if your car is stolen or written off, it’s up to you how you use the money. You should weigh up market value vs agreed value to determine which one is suitable for your needs and worth the savings or additional costs involved.
Smiling woman sitting in car

Get the right car insurance for your vehicle

If you’re not sure your car has got the right cover, and you’re not sure where to begin, try asking yourself a few questions. Here are our suggestions:

  • Is my car insured for the right amount of money? Ideally, you’d get back enough money to buy a vehicle like the one you lost.
  • Does my policy include all the things I need? Think about your needs when looking for a new policy. You may want roadside assistance bundled into your policy, for example.
  • Do I understand my policy? Make sure you carefully read each policy’s Product Disclosure Statement (PDS).
  • Have I found great value insurance for my situation? You can’t be sure, unless you’ve compared policies from different providers against one another. It’s easier than you think, and now is the time for you to compare car insurance.
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Written by Alex Rappel

Alex is quick to make a bad joke at the wrong time. He's got an unhealthy obsession with the hit TV series 'Friends' and is absolutely incorrigible when it comes to writing. Above all else, Alex loves helping people. In fact, one of the best ways he does this is by telling stories to explain complex ideas.

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