Agreed Value vs. Market Value: What Should I Choose?
When it comes to buying car insurance, one of the decisions you'll need to make is whether to opt for agreed value or market value coverage. Understanding the differences between these two types of cover is essential in making an informed decision that meets your needs.
Agreed Value
Under an agreed value policy, you and your insurer agree on the value of your vehicle when you take out your policy. This agreed-upon value remains fixed throughout the duration of your policy (usually 12 months) and is reviewed at the time of your policy renewal. This type of coverage provides a sense of certainty, as you'll receive a predetermined payout in the event that your car is damaged beyond repair or stolen and not recovered. Agreed value coverage can be a good option for those who want to ensure that they receive a specific payout in the event of a total loss.
It's important to note that the agreed value payout amount may be reduced by any outstanding premium payments, excesses, or instalments that are owed. Furthermore, the agreed value amount may differ between insurers, so it's worth considering this when purchasing car insurance.
Market Value
Under a market value policy, the value of your vehicle and the corresponding payout will be determined at the time of your claim. This means that the payout amount may fluctuate depending on the current market value of your car, which can change over time. Typically, most cars will see their market value decline over time, which means that the payout amount may be lower than the amount you originally paid for the car.
It's worth noting that the market value payout may or may not include additional replacement costs such as transfer fees, dealer fees, excesses, and stamp duty. Furthermore, the market value payout may be affected by factors such as the age, condition, and mileage of your vehicle.
How to Choose Between Agreed Value and Market Value Coverage
To make an informed decision between agreed value and market value coverage, it's essential to understand your priorities and preferences. If you value certainty and predictability, an agreed value policy may be the way to go. On the other hand, if you're comfortable with some level of uncertainty and want coverage that more closely aligns with the current market value of your car, a market value policy may be a better fit for you.
To help you make your decision, you can also consult independent third-party data sources that can help you estimate the potential replacement costs for your vehicle. One such resource is Red Book, which provides comprehensive car valuations and information on depreciation rates. You can also do research on car classified sites like Carsales or Carsguide to get an idea of the market value of your car.
It is worth noting that in the case of a new or near new vehicle, you may be able to get the best of both worlds. Some insurers offer a "new for old" benefit, which will replace your vehicle with a brand new equivalent if your vehicle is written off. This would usually apply for a limited time, for example for the first three years of ownership. This additional benefit can provide extra peace of mind for your new vehicle. When the benefit period is over you can then opt for market or agreed value from that point on.
In conclusion, whether you choose agreed value or market value coverage depends on your individual circumstances and preferences. By understanding the differences between these two types of coverage and consulting independent data sources, you can make an informed decision that provides the protection you need at a price that fits your budget.
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.
