(Feature Image: Agreed value vs market value vehicle insurance cover)
When it comes to choosing the right plant equipment or truck insurance, one of the most important decisions you’ll make is whether to insure your vehicle for market value or agreed value.
This choice can influence how much you’re paid if your vehicle is written off, your insurance premiums and the overall suitability of the insurance policy for your needs. There’s no single answer, instead, what’s appropriate for you will depend on your individual circumstances, financial situation and how you value your vehicle.
Here, we break down the key differences between market value and agreed value insurance, how they apply to insurance cover and what factors to consider when choosing a comprehensive vehicle insurance policy.
What is market value vehicle insurance?
Market value refers to the amount your vehicle would reasonably be worth on the open market at the time of a claim, factoring in things such as its age, make and model, condition, kilometres driven and market conditions.
If you choose market value insurance, your insurance company will assess the value of your vehicle at the time of a total loss and pay out an amount based on what a similar vehicle would be worth. This means your sum insured isn’t fixed and can fluctuate, depending on external conditions like demand, depreciation and availability of parts.
For example: You bought your car for $30,000 two years ago, but today a similar car might only fetch $22,000 in the market. In the event of a write-off, a market value policy would generally pay out the current trade in value or sale value of the car.
Pros:
- Typically results in lower premiums
- May be suitable for older vehicles or cars with less predictable values
- Reflects actual market conditions at the time of claim
Cons:
- Less certainty over payout amounts
- Could be lower than what you expected or need to replace your car
- Might not match your car loan balance
What Is Agreed Value Vehicle Insurance?
With agreed value insurance, you and your insurer decide on a fixed value for your car at the time you purchase or renew the policy. This becomes the sum insured and it’s the amount your insurer will pay if your vehicle is declared a total loss during the policy term.
The agreed value is generally based on the purchase price, current condition, modifications and any added accessories. Depending on the insurer, it may need to fall within a given range.
For example: You and your insurer agree to cover your new vehicle for $30,000. Even if market value drops to $25,000 over time, the insurer pays the full agreed amount in the event of a write off regardless.
Pros:
- Greater clarity around payout amounts
- Can be beneficial for newer, modified or specialty vehicles
- Useful if you have a vehicle loan that requires a fixed value payout
Cons:
- May come with a higher first year’s premium
- The agreed value may decline with each renewal
- Insurers may only offer this option for newer vehicles
So When Might Agreed Value Be More Suitable?
Agreed value may be preferred if:
- You’ve bought a new vehicle and want to protect your investment
- Your vehicle has been modified or upgraded
- You want the certainty of knowing what you’ll receive if your vehicle is written off
- You’re concerned about your ability to afford like for like replacement in current market conditions
(Image: Comparison of pros and cons of market value and agreed value insurance cover)
What Does This Mean for Comprehensive Vehicle Insurance?
When buying comprehensive insurance, most insurers will give you the choice between agreed value or market value. This applies to policies designed to protect against damage to your own vehicle, theft, weather events and other insurable events.
Choosing the right type of coverage should be based on:
- The age and condition of your vehicle
- Whether you’ve made custom modifications
- Your insurance budget
- Your expectations around vehicle replacement
- Whether you’re financing your vehicle with a loan
If you’re buying a brand new piece of plant equipment or brand new van from car dealerships, agreed value cover might help protect your initial investment. However, as the vehicle depreciates, some may choose to switch to market value cover to reduce their insurance premiums.
How to Know When Market Value Might Be More Suitable
Market value may be preferred if:
- You want to keep your premium down
- You drive an older vehicle or one that depreciates quickly
- You’re comfortable with a payout based on real-time market conditions
- You’re not relying on the payout to match a loan balance
What About Third Party Insurance?
Third party insurance, including third party property or third party fire and theft, typically does not include cover for damage to your own vehicle, so the market vs agreed value question will usually not apply.
These policies are designed to cover damage you cause to other vehicles or property and sometimes include limited fire or theft cover for your own vehicle.
What Else Should You Keep in Mind?
Aside from simply choosing between different policy types, it’s vital to also review the following:
- Product Disclosure Statement (PDS): Always read the PDS carefully to understand how your insurer defines and calculates market or agreed value and what conditions apply to each.
- Target Market Determination (TMD): Review this document to make sure the insurance product aligns with your needs and personal circumstances.
- Valuation Method: Some insurers may use data from car dealerships, trade in tools or valuation platforms to determine market value. The figure may not reflect your vehicle’s sentimental or perceived worth.
- Policy Renewal: If you’ve chosen an agreed value, your insurer may reassess the amount at each renewal. It may reduce over time, particularly if your vehicle is no longer new.
- Write-Off or Total Loss: In the event of a total loss, your payout will generally be the sum insured (agreed or market value) less any applicable excess.
Is There a Right or Wrong Answer When Making a Decision?
Not necessarily. There is no universally correct option when it comes to agreed value vs market value. What’s considered the right insurance for one person might not suit another. The decision should reflect your financial situation, expectations and how important vehicle replacement certainty is to you.
A broker or adviser can assist you to compare different insurance cover types, review the insurance claim process and determine if market value or agreed value cover is more aligned with your circumstances.
(Image: Insurance policy review)
Choosing Between Agreed and Market Value? We Can Help
Understanding the difference between agreed value and market value is just one part of selecting the right insurance policy. At Insuregroup, we bring deep experience across a broad range of insurance classes including commercial motor, fleet, liability, machinery and property cover.
As part of the Steadfast Group, Australasia’s largest general insurance broker network, we have access to a wide panel of insurers and policy options. This network helps us support clients of all sizes in reviewing their cover, understanding exclusions and selecting solutions that reflect their vehicle use, operational needs and financial circumstances.
Get in touch with Insuregroup online or by phone today to explore your options. We’re here to help you identify appropriate cover with a preferred insurance company and select a policy with confidence.
Disclaimer: The information provided is general only and doesn’t consider your specific financial situation, objectives or needs. Please refer to the PDS and consider seeking professional advice before deciding if a product is suitable for you.