Car Insurance: Market value vs agreed value

Purchasing a new car involves a string of difficult decisions. This includes stuff like which car insurance company to go with or whether to take out third party or comprehensive car insurance.

If you’re looking to insure your sweet new ride comprehensively, you’re going to have to make another important decision. Do you insure your vehicle at market value or for an agreed value?

Like all of your previous car-related decisions, this is pretty important and will affect how you’re compensated should your car be deemed a “write-off” or if it is stolen and unrecovered.

What is market value car insurance?

Market value is the value your vehicle would fetch if it were up for sale at the time of a claim. It is important to realise this is the amount your insurance company values your car for and might not necessarily be exactly what you paid for it or what a particular buyer would pay for it.

When determining the market value of your car, insurance providers are taking into account the vehicle’s make, model and age. Insuring a Toyota might be a different story to insuring a Mercedes-Benz, for example.

• Pros

Market value, generally speaking, has the advantage of offering lower premiums for policy holders. This is because the market value of your vehicle is likely to be less than any valuation of your car that you would agree with your insurance provider.

• Cons

There is a degree of uncertainty over your payout if your car is totalled or stolen. As part of your comprehensive car insurance policy you will likely receive a substantial amount, but this may end up being less than what you paid for the vehicle or less than you expected. This is because the provider is valuing your car based on what similarly-aged cars of the same make and model are selling for on the open market at the time of the accident.

Who’s market value insurance good for?

If you’ve got a car that isn’t brand new, market value might be best option for you. Depreciation would have slowed after a few years and your payout should still be large enough for you to cover the costs of replacing your car if it gets stolen or was damaged beyond repair.

What is agreed value car insurance?

On the other hand, agreed value ensures you are paid the set amount you specify if the car is written-off or stolen and unrecovered. This is a reasonable, fixed sum that you have agreed with your insurance provider at the time of your policy renewal.

• Pros

Agreed value gives you greater control over your potential payout in the worst-case claims scenario. By agreeing to a specific value you can have the peace of mind of knowing you would be covered for an exact, predetermined amount.

• Cons

Premiums tend to be more expensive because, in the event your car is totalled, you’ll probably be paid out a greater amount than if you had chosen market value policies.

BUYER BEWARE: If you opt for agreed value car, when it comes to renewal time check your policy carefully as some car insurance companies will automatically revert your policy to market value. This is easily amended by contacting your insurance provider and telling then you'd like to remain under an agreed value policy.

Who’s agreed value insurance good for?

Agreed value is usually opted for by policy holders who have recently bought a newer car, see greater sentimental value in their vehicle, or have extra features that make the car more valuable than a stock model.

Newer cars depreciate more rapidly, so if you want to be able to replace your car with another new car, it is a good idea to agree on a sum that would allow you to do so. If you have finance owing on your car or had to take out a car loan, it is probably a good idea to go with an agreed value. The last thing you want is outstanding loan repayments alongside the gap between your market value payout and the cost to get replacement wheels.

Not sure where to start your car insurance journey? Find out more with this guide to the different types of car insurance.