It can be difficult to get your head around automotive insurance, especially when you’re just starting to drive or haven’t driven in Australia before. This is why we’re explaining some of the most common terms used in your insurance documents in this ‘Car Insurance 101’ mini series. Today we’ll be talking about your car’s ‘market value’ vs ‘agreed value’ and help you decide which option to choose when filling out your insurance form.
The term ‘market value’ describes how much money you would receive for your vehicle on the open market. This doesn’t include trade-ins. In case your vehicle is written off after an accident, the amount of money you will receive from your insurer is determined by the amount your insurer thinks your car is worth at the time of the accident. Beware that a vehicle’s market value decreases steadily, as soon as it rolls off the factory floor.
The term ‘agreed value’ on the other hand is a set amount of money your car is ensured for. This amount is agreed on by yourself and your insurer when you take out your policy. It can be changed each time your policy comes up for renewal. If your vehicle is written off, you will receive the agreed amount from your insurer.
So, should you choose ‘market value’ or ‘agreed value’ when taking out your policy? In many cases – in our opinion – selecting ‘agreed value’ is the better choice.
Let’s say you insure your car at market value, at the start of your policy your car is valued at $30,000. By the time your 12 months have passed you still pay premiums on your $30,000 market value policy, however if your car is written off you only get paid out your car’s current market value. Since your vehicle’s market value has likely decreased, this amount might only be $25,000 to $26,000 or less. Therefore it would be smarter to ensure your vehicle for an agreed value of $30,000 – thereby if your car is written off you get $30,000 back from you insurer.
We hope this info was helpful for you. Is there anything in particular you want us to cover in future posts of this ‘Car Insurance 101’ series?
Make sure you always read your insurance policy product disclosure statement. This information above is written to provide helpful general guidance automotive-related topics. It should not be relied on as legal advice. It may not cover everything that may be relevant to you and does not take into account your particular circumstances. You must ensure that you seek appropriate professional advice in relation to this topic as well as to the currency, accuracy and relevance of this material for you.