Market value car insurance

Find out how this method of estimating your car’s value works, so you can decide whether it’s the most sensible option for you.

When purchasing a car insurance policy, one of the options you’ll need to choose from is whether to insure your vehicle for its market value or for an agreed value that you negotiate with the insurer. Market value car insurance is normally the default option, and although this figure is estimated at the time you purchase your insurance policy, it is subject to change over time.

car odometer

What is market value car insurance?

The market value of your car is the price you would be likely to receive for it if you sold it just before it was damaged or stolen.

This estimate is not based on how much you would receive for a trade-in or if you sold your car to a collector or anyone else who might offer you more than a typical buyer.

As your car’s market value depreciates over time, the amount you can receive also decreases. In other words, the nominated market value at the time you purchased the insurance will almost always be greater than its market value as assessed at the time you make a claim.

By comparison, covering your car for an agreed value guarantees a specific replacement cost as discussed with your insurer and does not decrease over time.

Why choose market value?

  • Your premiums will be cheaper. The greatest advantage of market value car insurance is that you’ll save on premiums compared to agreed value car insurance.
  • You’ll most likely be able to afford a similar car. The price of cars similar to the one you’ve insured will also be affected by depreciation, which means that as your sum insured diminishes over time, the cost of a replacement vehicle will become more affordable.
  • It’s usually a good option for older cars. An older used vehicle will not depreciate as noticeably as a brand-new one, whose market value drops sharply the second you drive it away from the dealer. By contrast, you are not likely to get your money’s worth if you’re covering an older car for much more than its market value.

How else can market value work in your favour?

New tyres, brake pads and other consumables will increase the advertised value of a car similar to yours, even if you didn’t update any of these on your old car. A recently renewed registration on a used car will also command a higher advertised price. This means that in practice, the market value of your old car might enable you to afford a replacement vehicle in better condition than yours was at the time it was written off.

Which is cheaper?

Market value car insurance is almost always the less expensive option. Unlike agreed value insurance, your premiums are also likely to decrease as the vehicle’s market value depreciates over time.

Does every insurance company have the same market value?

Different insurers use different methods to determine a vehicle’s market value, so one company might assess your car as being worth more than another. However, there are several common factors in how an insurer arrives at their market value estimate.

  • Industry-standard valuation. Your insurer will refer to sources such as Redbook, Glass’s Guide or similar valuation tools, which statistically analyse documented sales of motor vehicles.
  • Ads for similar cars. A common practice is to compare the initial “automatic” valuation with current advertisements for cars that are the same make and model as yours and in similar condition.
  • Depreciation factors. Your car’s odometer reading and how much time (if any!) it spent in a garage also affect its market value. However, the extent to which these and other factors affect the final assessment differs from insurer to insurer.

How does insuring for market value affect my claim?

The rate of depreciation is steepest for new or almost-new cars. This means that if you purchase market value car insurance, the payout you are eligible for will be much less than what you paid for your car, even if it’s stolen or written off within weeks of purchase. In this case, insuring for an agreed value is a better way of protecting your investment.

However, agreed value is not automatically the best option. If you have an older car that’s insured for an agreed value significantly greater than what it’s worth, then your insurer is more likely to opt for having it repaired instead of written off if it’s damaged. This is because the sum insured might be enough to cover the cost of repairs that are more expensive than simply replacing the car, but cheaper than a payout of the full agreed value.

What if I disagree with the valuation?

If you believe your insurer has unfairly undervalued your car, for example by basing the estimate on interstate advertisements, you have the option of challenging the suggested payout figure. In this case, if the estimate you can obtain from an independent assessor is higher than what your insurer quoted as the car’s market value, you are likely to receive a larger payout.
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William Eve

Will is a personal finance writer for specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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