Market Value vs. Agreed Value Car Insurance – What’s the Difference?

The next time you renew or request a quote for a car insurance policy, you may have the option between insuring your car for market value or an agreed value.

In this article, we’ll break down the key factors and the pros and cons of agreed value vs market value, so you can decide which cover fits your needs best.

For car insurance, market value or agreed value is the amount your car is insured for and determines how much you'll receive should it be written off or stolen and not recovered. Market value is determined based on your vehicle’s condition, and is usually a cheaper alternative to insuring your car for an agreed amount.

When you insure your car for market value, you are covered for the reasonable replacement cost based on what your car’s worth ‘in the market’.

This is determined by your insurer at the time of the loss or damage. It takes into account factors such as the make, model, age, kilometres travelled, comparable sales and the overall condition of your car.

To give you a general idea, there are also several free online tools which can help you estimate your car's value by entering the details such as; the make, model, year, and odometer reading.

One of the main benefits of selecting market value is that premiums are generally cheaper compared to insuring your car for an agreed value.

This is because the value of your car can typically depreciate over time, so the cost to reasonably replace it will be based on an insurer’s estimate of what your car is worth on the open market before it was damaged. In most cases, it’s important to note that this payout amount may be lower than the price you originally paid for the car. This is because the market value assessment at the time of your claim accounts for factors like depreciation, the vehicle's age, and its condition.

On the flip side, an agreed value means you’ll be covered for a set amount regardless of your car’s depreciation during the policy term. This means if your car is declared a total loss (for example, written off or stolen and not recovered) and your claim is accepted, you will receive a cash payment for the amount your car is insured for.

An agreed value policy sets a fixed sum insured for your vehicle for the term of the policy. Although this option tends to cost more, it means you'll know exactly how much you will receive if your car is declared a total loss. Because the payout value is known in advance, this option may help reduce the chance of a gap between your insurance settlement and any remaining car loan balance you have.

If you own a unique, classic, or modified vehicle, an agreed value may be more suitable. For instance, an agreed value may account for a portion of your modifications if your insurer agrees to cover these and list them on your policy.

At Budget Direct, you may have the option to insure your car for an agreed value, provided:

• Your car is less than 10 years old; and

• Your car has not been converted to LPG (liquid petroleum gas); and

• The car has no pre-existing damage; and

• The agreed value is within an acceptable range of the market value.

Your policy renewal is the best time to review and update the appropriate value if modifications or accessories have been added. You can view and update your Budget Direct policy details quickly and easily online, via the Policy Manager.

If you've ever had your car badly damaged in an accident, then you'll know just how stressful the whole situation can be. When it comes to insurance, understanding what happens if your vehicle is declared a total loss or written off is absolutely essential.

So, what is a total loss? This is when your car is so badly damaged that your insurer decides your car is uneconomical to repair, or it simply can't be repaired safely and needs to be replaced entirely.

In these situations, your insurer pays out either the market value or the agreed value of your car, depending on what type of policy you've got.

If you've ever shopped around for car insurance, you'll know the cost of your premium is one of the biggest factors to consider.

If your primary goal is to save money on your car insurance premium, the market value cover is more likely to be a wallet-friendly option. That's because your insurance only pays out what your car's actually worth when you make a claim. And this generally means a lower premium, which is why it's such a popular choice if you're trying to save on insurance costs.

Agree value cover, on the other hand, is a different story. It'll typically come with a higher premium because it offers certainty with a guaranteed fixed sum payout if your car gets written off or stolen. This kind of certainty can be valuable, especially if you've got a brand new car, a vehicle with special modifications, or you simply like knowing you’re covered if the worst happens.

However, if you've just bought a new car, it's important to first check if your policy includes a new car replacement benefit. Otherwise, an agreed value might be worth the higher premium cost. However, if you own an older used car, you might prioritise a lower premium with market value cover.

Ultimately, there isn’t a right or wrong answer when it comes to deciding between market value or agreed value car insurance, and it really depends on a few factors: how you value your car in relation to the market, how much you want to spend on premiums and the age of your car.