What both agreed value and market value imply for your car insurance?

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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, updated on November 25th, 2021       

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Before you take out a vehicle insurance policy, you need to understand the difference between agreed and market value: this could help you save money or protect you against worst-case scenarios, should your car be written off or stolen.

According to the National Motor Vehicle Theft Reduction Council, 4% more vehicles, totaling 56,184 vehicles, were stolen during the 2016/17 financial year. As a result, most people wish to insure their vehicles. Many are also faced with the choice between agreed- and market-value car insurance. Of these, each has its own benefits and drawbacks. However, you need to weigh these benefits and drawbacks against the sort of vehicle you are insuring and the level of risk-cost ratio you are at ease with.

Agreed-value car insurance

Agreed value is the fixed amount the car is insured for when the policy is taken out. The car will then be seen to be worth that agreed amount for the purposes of the policy.

Why agreed value?

There are some benefits to agreed value. For instance, you know exactly how much your car is insured for, the car value being fixed, which is useful if you have a loan on the car. This also means that you can set the value under market value and save some money of premium. People who have made modifications to their vehicles usually take up the agreed-value option as the additional mods and its value in not covered off under market rate. It is important to note, that the agreed value of a used car should be negotiated based on industry guidelines. Premiums are normally higher than when insuring market value however you are usually getting a lot more out of your policy if your car was to be written off compared to market value.

Market-value car insurance

Market value is the standard option whereby the value of the car is based on what you can expect to get for it on the open market, taking into account its condition and depreciation. The condition comprises mileage, service history, and accident reports.

Why market value?

Market value is better for older cars, or standard cars without any custom modifications. The premiums are also normally lower than agreed value. Furthermore, as the amount the vehicle is insured for is updated automatically, you avoid paying more than you need to. On the downside, the market value, the amount that the insurer will pay-out if your cars was written off, will always be lower than what you have paid for the vehicle or what you may owe on the finance.

Which option is better?

To answer this, you could study these following two factors:

  • How your car insurance value affects the claim. When the car is stolen or written off, the real difference between market- and actual-value insurance becomes clear. For instance, with agreed value you get what is mentioned in the policy, however, with market value the amount will be lower.
  • Think about car-replacement cost.

You also need to consider the replacement cost: will you be able to buy a new one with the payout? For instance, a cheaper insurance might save you money, but if your car is stolen or written off, will the payout get you into a new vehicle? Or will it leave you in a position with not enough money to replace or even worse leave you with a debt from the financier?

Ultimately, your insurance should be based on the car you have, and how much you want to pay. Most Australians have an older car, the average age of a car in Australia being 10.1 years old. If this is the case for you, a market-value insurance will be most cost-effective. However, should you own a new luxury car then agreed value may be the better choice.