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For many Australians, their car is an essential in their day-to-day life. According to the latest government data, there are 19.4 million licensed drivers in the country, accounting for around 72% of the population.
As a driver it’s important to know the difference between market value and agreed value in car insurance. Should someone steal your car or your car is written off, it could be the difference between your policy paying out enough to cover a replacement or you needing to fork out.
We explain the difference between market value and agreed value insurance below, how it affects a claim, and how to choose between the two.
Related: Our Pick of the Best Comprehensive Car Insurance Providers
What's the Difference?
What Is Market Value?
On a market value car insurance plan, if your car is stolen or written off, the insurer will calculate what its purchase price would likely have been immediately before the incident, and will pay out this amount for a total loss claim.
Its calculations will be based on the value of the vehicle as a used car, and will consider factors such as the make, model, age of the car, its condition and the mileage. Most drivers opt for this form of insurance.
What Is Agreed Value?
Drivers have more to consider in advance on an agreed value plan, as they are allowed to negotiate a guaranteed fixed dollar amount as the payout, in the event of a total loss claim.
Agreed value car insurance is unpopular, and in fact, rare, as it typically requires policyholders to pay more in premiums in exchange for a guaranteed payout.
How Does This Difference Affect A Claim?
Agreed value policyholders can have peace of mind that they’ll receive a payout, and they will know the amount to expect.
Still, it’s best to check the Product Disclosure Statement for the details as insurers may expect to renegotiate the agreed value annually to account for depreciation, or switch your plan to market value at renewal.
On the other hand, if you’ve chosen for your insurer to calculate your car’s probable value at the point of you claiming, there’s no certainty what this amount will be. Cars rapidly depreciate in value, losing up to 60% of their worth in the first year, which means in certain cases some drivers are left underinsured, with a payout too little to purchase a like-for-like car.
Which One Is Better: Market or Agreed?
Whether you opt for market value or agreed value car insurance should depend on your personal circumstances.
Generally, market value cover can be considered best for an older car that is low in value, as you will likely need a relatively small payout to replace it with a similar car. Agreed value cover may be the better option if you’re insuring a new car and want protection against financial depreciation.
The latter may also be most useful if you’ve taken out a car loan, as your payout will most likely cover any outstanding balance.
However, market value is usually the more affordable option, and the most common. It’s extremely unlikely that you’ll find agreed value provisions in third party or third party, fire and theft insurance, and only some comprehensive plans offer this option.
Frequently Asked Questions (FAQs)
Can I switch to a market value policy?
If your car is no longer new and has lost much of its value, you may see no need for an agreed value policy anymore.
Some Australian car insurers offer the option to switch to a market value policy should you wish, which could lower your premiums. You can check whether this is an option in the policy PDS or with your provider.
What can I do if I don’t agree with my insurer’s valuation?
You can challenge what your insurer finds to be the market value of your car, if you consider it too low.
You’ll need to provide evidence to support your own assessment, such as independent valuations.
If you cannot reach an agreement with the insurer, you can file a complaint with the Australian Financial Complaints Authority.
What about modified cars?
Modifying a car can not only alter a car’s value but make it difficult to determine its market value. In this case opting for market value cover could leave you disappointed should your insurer value your car less than you believe it’s worth.
On an agreed value policy you’ll have the benefit of agreeing the value when you first purchase the policy, and this amount will be paid out for a total loss claim.
