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What is the difference between market value and agreed value car insurance?

What is the difference between market value and agreed value car insurance?

When choosing car insurance policies that cover your vehicle if it’s written off, you can choose to cover the car for either the market value or an agreed sum.

When looking at comprehensive car insurance policies, you will need to decide between market value or agreed value of the car. This will be the total amount your car will be insured for, which an insurer will pay-out if the car is written-off after an accident. Your car may be written off after an accident because the car is either too badly damaged to repair or the cost of repairs is higher than the cost the car is insured for. 

You should remember that a policy covering the agreed value of your car takes into account your estimate of the car’s worth, while a market value policy covers the insurer’s estimate of the car’s worth. If you own a car which can be costly to repair, such as a luxury vehicle or a vintage car, you may want to buy a policy that covers the agreed value of the vehicle rather than the market value. 

What are the pros and cons of choosing market value car insurance?

A market value car insurance policy, which is usually the default option, will require your insurer to pay the amount your car would sell for on the open market. The insurer will estimate this amount based on the market value at the time of the accident in which it was totalled or irreparably damaged.  Usually, this will account for the depreciation of the car’s value since the time of purchase, but since your insurer decides the value, you may end up paying a lower premium. The market value estimated by your insurer may not be the trade-in value of your car and may not always include any additions you make, although these can be added to the policy separately.

Apart from the possible cost advantage, a market value insurance policy can be more convenient as you don’t need to update the insured sum. However, you have little control over what the insurer considers the worth of your car, and you may end up receiving a lower than expected amount if it’s ever paid out.

The condition of your car and any additions may be deemed irrelevant, with only its make, model, and age taken into consideration when deciding the value. If you don’t drive your car often, lowering the risk of an accident, or are planning on trading it in soon, you’ll likely find a market value policy more convenient and cost-effective.

What are the pros and cons of choosing agreed value car insurance?

The other option you can go for when buying a comprehensive car insurance policy is the agreed value policy, which allows you to specify the amount covered. This option gives you the certainty of knowing the amount you’ll receive from the insurer in the event you have to file a claim.

You’ll also have more control over the car insurance premium you pay as you can lower the insured value. An agreed value policy may cost you more than a market value car insurance policy, and it may require you to get your car’s worth evaluated regularly. 

This kind of car insurance policy is preferable if you drive an expensive or vintage car, or if you plan to make modifications at a later stage which can increase its value. If you’ve taken out a car loan to purchase the car, you can know that the payout amount will repay the loan. This is because you can set the agreed value to be the estimated outstanding loan amount and not worry about the value depreciating over time. You’ll also not need to worry about whether you can afford to replace your car with another similar model in the event it is completely written off.

How do I compare car insurance quotes based on market value or agreed value? 

Comparing a market value car insurance policy with an agreed value policy may seem straightforward. But there are multiple factors to consider like the car you own and how much you drive it when making a choice.

For instance, if you drive a midrange car to work and back but can do without the car and still get around, buying an agreed value policy may prove costly and not particularly useful. If you’re more concerned about the cost of the insurance premium, a market value policy will likely be more suitable for you.

Consider using an online car insurance calculator to check how much your insurance premium can vary based on whether you choose a market value policy or an agreed value policy. You can also check the variation in the premium for different agreed values.

To get a more precise quote using a calculator, you will need to provide your personal information, including your age, gender, and place of residence. Comparing car insurance quotes online can help you select a more suitable policy, and many insurers also allow you to purchase a policy online.

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This article was reviewed by Head of Content Leigh Stark before it was published as part of RateCity's Fact Check process.

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