Comprehensive car insurance Australia : agreed versus market value
Whether you’re after cheap car insurance Australia for a new business vehicle, are replacing the family car, or simply reviewing your insurance position for best value and cover, you probably know that selecting the best car insurance Australia is not always as simple as it seems.
One of the key decisions you need to make is whether you want comprehensive car insurance for an agreed value or market value. Unfortunately there is no right or wrong answer. Rather, there are advantages and disadvantages to each, depending on the type of car you’re insuring and what level of risk versus cost you are comfortable with.
So how do you decide which valuation method suits you ? Read on for more information.
Market value is an insurance industry term for the price your car would be expected to command on the open market in its current state. This is not the same as the trade in value or the price that a particular buyer, such as a collector, would pay for your car.
Market value is the most common method chosen by car owners for determining the sum that their vehicle is insured for. The market value of your car is determined by your insurer using industry guides. The valuation is one factor used to determine the car insurance quotes Australia premium on your policy. Other factors include your residential postcode, whether the car is garaged or parked on the street, and any vehicle security features. Market value car insurance is almost always less expensive than agreed value car insurance.
If your car is declared a total loss by your insurance company due to it being stolen and unrecovered or written off, your insurer will reimburse you the market value of the vehicle at the time that the loss occurred. The exact amount is determined at that time using industry guidelines, with allowances made for the condition of your vehicle and any approved modifications or additions made.
This amount may be significantly different from the “market value” detailed on your insurance policy, as most vehicles depreciate in value as time goes by. In other words, “market value” is a floating value based on current market conditions and industry guidelines. As well as the actual condition of your vehicle, the factors that determine “market value” for insurance purposes are closely related to the factors that determine the resale value of your vehicle on the open market.
Although the market value of your vehicle may be less at the time of loss than the figure specified on your insurance policy, because you are purchasing a replacement car in the same market conditions that have been used to determine the payout you receive, it should be possible to purchase a similar vehicle of a similar standard and condition with the amount your receive from your insurer.
Market value valuations are particularly suitable for older cars in average condition and standard vehicles without custom modifications. If you have a new or highly modified car you may wish to consider agreed value for greater certainty of the actual dollar figure that your car is insured for in the case of a total loss.
Agreed value is a sum insured that is fixed by agreement between the insurer and the vehicle owner.
Agreed value involves the car owner and their insurer agreeing on a specific value for the insured vehicle when the policy is taken out. If the car isn’t new then this agreed value is generally negotiated based on industry guidelines and compare car insurance Australia on online sites.
In the event of a claim being made as a result of the car being declared a total loss, your insurance company will reimburse you the agreed amount.
Traditionally, vehicle owners with new cars or cars with custom modifications have potentially had the most to gain from this option. Agreed value policies allow you to include the cost of extras that may not be considered in the standard market value, and ensure that a vehicle that is new (or close to new) is replaced with the same, despite the depreciation that inevitably occurs when you drive a new car out of the dealership.
Today, many insurers offer “new for old” new car replacement on market value policies, offsetting one of the benefits of agreed value policies on new vehicles. New car replacement conditions differ between insurers, but essentially the vehicle lost is replaced with a brand new car in the event of a total loss of a “new” vehicle, with “new” being defined by specified vehicle age, mileage and ownership factors.
Unfortunately there is no easy answer to this question. Deciding between agreed value and market value comprehensive car insurance is a personal decision. Like other financial decisions, it may be affected by your financial position, risk profile and other personal factors. The type of vehicle you are insuring and whether it is under finance or not may also play a part in your decision.
An insurance policy using an agreed value will likely have higher premiums than one using market value, however non standard vehicles and vehicle owners looking for a greater level of certainty may benefit from the extra cost.