When you take out a car insurance policy, you may be given two payout options to choose from should your car get written off: market value or agreed value.
We’ll take you through what these are, how each option works and their pros and cons.
Market value car insurance is generally the go-to method for valuing a car. Your insurance provider will use the information they have about your vehicle (e.g. make, model, age) to calculate its probable value in the current market should you need to claim for your vehicle’s total loss or write-off.
To determine the market value for your car, your insurance provider will look at the price of cars on the open market that are the same as yours, or as close as possible in make and model, and calculate an average price. This figure is what you’ll receive if you’re covered and your car is wrecked beyond repair (or the repairs will cost more than the car’s worth).
Agreed value car insurance is where you and your insurance provider agree to insure your car for a set value when you take out a policy. This way, you know exactly what the payout will be if your car is a total loss.
The agreed value amount won’t be specified in your Product Disclosure Statement (PDS), but will be in other policy documentation (like your Certificate of Insurance).
The main difference between agreed value and market value is how much and how often the market value of your car can change compared to an unchanging, fixed value. Another key difference is that agreed value car insurance is not available on every policy.
It’s more common with comprehensive car insurance, but rarely available with any other level of cover.
There are advantages and disadvantages to both car valuation methods, which we highlight below.
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| Market value car insurance | |
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Deciding whether agreed value or market value car insurance is the better choice for you depends on your situation. You may find that if you have a car loan or a brand-new car an agreed value comprehensive car insurance policy could be a suitable option for you.
This is because brand new cars depreciate in value very quickly, so taking out car insurance with an agreed value can help protect you against the financial impact of depreciation should you need a payout after a write-off. Similarly, if you have a car loan, an agreed value policy may help you pay off the loan should the car be deemed a total loss after an incident.
On the other hand, if your car is all paid off and you’ve had it for a number of years, you may decide that market value car insurance is best because it’s more affordable and you don’t need any of the advantages of agreed value car insurance.
When your insurance renewal rolls around each year, you might find your insurer lowers your agreed value amount. You may be able to negotiate a different agreed value each time by contacting your insurance provider once you receive your renewal notice.
It’s extremely rare to find agreed value car insurance options on Third Party Property Damage (TPPD) or Third Party Fire and Theft (TPFT) policies, but not impossible. Generally speaking, it’s only an option reserved for comprehensive, the highest type of car insurance cover.
This is because TPPD policies don’t normally cover damage to your vehicle (except in specific circumstances), so there is little need to determine the value your car will be insured for. It’s easier to find agreed value TPFT car insurance as this level of cover insures you against certain events that damage your car, but it’s still uncommon.
Furthermore, Compulsory Third Party (CTP) car insurance only covers the costs and liabilities you have for any injuries you cause to other people. It doesn’t cover any costs related to servicing or writing off your car so market value or agreed value insurance for your car is not a relevant consideration and won’t be a part of CTP insurance.
Market value is not the same as trade-in value. Trade-in values are determined by car dealerships when you bring in a current vehicle and plan on purchasing a new one, whereas market values are based on what cars like yours are selling for on the market (both first- and second-hand).
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