Market Value vs Agreed Value in Car Insurance

Learn about the differences between market value and agreed value cover with Savvy today.

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, updated on February 15th, 2024       

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When it comes to taking out car insurance, you may need to decide whether to insure your vehicle based on its market value or agreed value. Each option has its own considerations, so understanding the differences between them is essential for choosing the right cover for your needs.

Get to grips with the differences between market value and agreed value with Savvy. In this useful guide, we explore what the terms mean, discuss their pros and cons and provide guidance on picking the best option for you.

What is market value in car insurance?

‘Market value’ refers to the current worth of your vehicle in the open market. It takes into account various factors such as your car’s age, make, model, condition and mileage, as well as demand for similar vehicles. Insuring your car based on its market value means that in the event of a claim, the payout will be determined by the insurer based on the vehicle’s estimated worth at that time.

What is agreed value in car insurance?

Agreed value is a predetermined value that you and your insurance provider mutually agree upon when insuring your vehicle. This is the amount you’ll be paid in the event your car is written off, even if its value has depreciated. While generally more expensive than market value cover, agreed value coverage provides the assurance of a specific payout, which can be especially beneficial for owners of classic or luxury vehicles.

Is market value or agreed value car insurance best for me?

Choosing between market value and agreed value when taking out car insurance depends on your individual circumstances and preferences. Here are some key factors to consider:

  • Vehicle type and value: if you own a standard car with a relatively stable market value, market value coverage may be suitable. However, if your vehicle holds significant sentimental or collector’s value or if its market value is difficult to determine accurately, agreed value coverage can provide greater peace of mind.
  • Budget and affordability: market value cover is generally cheaper, making it more affordable for many policyholders. Agreed value cover, on the other hand, is typically more expensive due to the fixed payout.
  • Risk of depreciation: consider the potential impact of depreciation on your vehicle’s value. If your car is prone to rapid depreciation, such as new, luxury or high-performance vehicles, agreed value coverage may safeguard against potential financial loss.
  • Specialised or modified vehicles: if you've modified or enhanced your vehicle, or if it falls into a unique or specialised category, agreed value coverage is a popular option. It takes into account the added value resulting from these modifications and helps you ensure that you’re adequately compensated in the event of a total loss.

Will I always get to choose between market value and agreed value on my car insurance?

While many insurance providers offer the choice between market value and agreed value coverage, this may only be an option on their comprehensive car insurance policies. Third party property damage and third party fire and theft policies, which offer a lower level of cover, usually only offer market value coverage.

Furthermore, some insurers may only offer one type of cover as standard (often market value), while others may limit certain options based on factors such as the age, make or model of the vehicle. To find out which options are available to you, it’s essential to inquire with your insurance provider.

The pros and cons of market value and agreed value

Market value

  1. Affordability: insuring your vehicle based on its market value is generally more affordable in terms of premiums.
  2. Easy valuation process: determining the market value is relatively straightforward, often relying on standard online valuation tools or market research.
  3. Flexibility in coverage: allows your coverage to adjust along with the depreciation of your vehicle, ensuring you aren’t overinsured.
  1. Subject to depreciation: the market value of your vehicle will decrease over time due to factors like age, mileage and wear and tear.
  2. Potential underinsurance: in the event of a write-off, the market value may not adequately cover the cost of replacing your vehicle.
  3. Possible disagreement with insurer: you and your insurer may have differing opinions on the market value of your vehicle, leading to potential disputes.

Agreed value

  1. Guaranteed payout: you receive a predetermined amount if your vehicle is deemed a total loss, providing financial security.
  2. Protection against depreciation: safeguards against potential depreciation, ensuring you receive the agreed-upon value regardless of market fluctuations.
  3. Provides a fixed value for coverage: you have a clear and defined coverage amount, eliminating uncertainties.
  1. Higher premiums may apply: agreed value coverage often comes with higher premiums due to the added financial guarantee.
  2. Potential overvaluation: there’s a risk of overvaluing your vehicle, which can lead to paying higher premiums than necessary.
  3. Limited availability: coverage may not be offered by all insurance providers or may have specific eligibility criteria.

Common questions about market value and agreed value cover

Does my car’s agreed value remain the same throughout the policy term?

The agreed value remains constant throughout the policy term unless you make changes such as modifying your vehicle. The agreed value amount may also change when the policy renews; if it does, your insurer should inform you of this in your policy renewal notice.

Can I switch from an agreed value policy to a market value one?

You may be able to switch between agreed value and market value policies when renewing your policy or changing your cover, provided your insurer offers this option. For example, if your car is getting older and is no longer as valuable, you may be able to lower your premiums by changing to a market value policy. However, it’s essential to check with your insurance provider for any specific requirements or limitations that may apply.

Can I negotiate the agreed value of my vehicle with my insurance provider?

Your insurer may adjust your car’s agreed value whenever your insurance policy comes up for renewal. If you disagree with their valuation, some providers may allow the agreed value to be negotiated during the renewal period, depending on their terms and policies.

If you’ve taken out a policy with agreed value cover and your car is subsequently written off, it may be harder to dispute your insurer’s assessment of your vehicle’s value as the value has already been set and approved.

What if I don’t agree with my insurer’s assessment of my car’s market value after it’s written off?

If you have market value cover and your car is written off, your insurance company will generally compensate you based on its assessment of the current value of the car. This typically considers factors such as the price of similar cars in the same condition, age and mileage.

If you disagree with the valuation, you may be able to challenge the assessment. You should gather evidence to support your case, such as independent valuations of your car, and communicate this to the insurer. If you cannot settle the dispute, you can make a complaint to the Australian Financial Complaints Authority (AFCA).

What’s the difference between market value and trade-in value?

Market value and trade-in value are two different methods of determining a vehicle’s worth. Market value refers to the estimated worth of a vehicle in the current market, determined by considering the prices of similar vehicles for sale. Trade-in value relates to the amount a car dealer is willing to offer you for your vehicle. The trade-in value is often lower than the market value because the dealer needs to resell the vehicle and cover any associated costs.

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