Market Value vs Agreed Value Car Insurance – How To Choose

  • Insuring your car for market value is generally about 10% cheaper than a policy based on an agreed value but there can be exceptions, according to Money.com.au's analysis.
Car agreed or market value
Car agreed or market value

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Market value vs agreed value: What's the difference?

Market value or agreed value in car insurance refers to the amount your vehicle is insured for (and how much you’d receive in compensation) should it be written off in an accident or stolen.

Here’s the difference between the two:

  1. Market value is the insurer’s estimate of your car’s selling price at the time of a claimable event like a road accident or theft.
  2. Agreed value is a fixed dollar amount you negotiate with the insurer to insure your car for at the time you take out your policy.

1. Market value

Insuring your car for market value means you’re covered for the fair cost of replacing your vehicle (in the event of a total loss) based on its current value in the market. Put simply, it's the amount you would pay to buy your car again today. It’s the most common coverage option since most people don’t exactly know the value of their car, according to Youi.

  • Pro: Choosing to insure your vehicle for its market value generally reduces your premium. That’s because cars tend to depreciate over time, so the cost to reasonably replace a vehicle will typically be less than the initial market value of your car when you first got or renewed your car insurance.
  • Con: It gives you less certainty on your final settlement amount if your car is declared a total loss.

Your insurance provider will assess your car’s market value at the time of the loss or damage by considering factors like the make, model, age, mileage, and overall vehicle condition.

Market value is generally the default coverage option when obtaining a car insurance quote.

2. Agreed value

Insuring your car for an agreed value means your vehicle is covered for a pre-agreed amount decided by you and the insurer, regardless of your car’s depreciation during the policy term.

  • Pro: In the event your car is declared a total loss, you’ll know exactly what settlement you would receive.
  • Con: Opting to cover your car for an agreed value often results in a higher premium. That’s because the compensation you would receive from the insurer could exceed the market value of your car.

When you get a car insurance quote, you will generally get an option to insure your vehicle for an agreed value. You’ll then be given a value range to choose from like, $20,000-$25,000, for example.

It’s worth noting that some insurance providers will not insure vehicles older than 10 years old for an agreed value, such as Budget Direct and ING.

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Your agreed value may change each time you renew your policy, and sometimes, it may revert to market value coverage upon renewal. Insurers consistently adjust agreed values (based on claims information and other data). That’s because it would be too risky for them to give you an agreed value that is significantly higher than a vehicle's current market worth.

Market value vs agreed value: How could it impact your premium?

Here’s an example of the difference in car insurance premiums when insuring a vehicle for market value versus agreed value. Quotes are based on a 30-year old female main policyholder in QLD driving a 2019 Mitsubishi ASX (private use), with no previous claims and no driver under 25 listed on the policy. The covered amount for the agreed value was $22,900-$23,000. Prices shown are for these scenarios only and are not necessarily indicative of what you may pay.

Budget Direct

Insured for market value

$102.44

Insured for agreed value

$112.99 ($22,900)

Youi

Insured for market value

$128.17

Insured for agreed value

$144.79 ($23,000)

Suncorp

Insured for market value

$196.53

Insured for agreed value

$182.26 (23,000)

ING

Insured for market value

$121.10

Insured for agreed value

$134.39 ($22,900)

Insured for market valueInsured for agreed value

Budget Direct

$102.44

$112.99 ($22,900)

Youi

$128.17

$144.79 ($23,000)

Suncorp

$196.53

$182.26 (23,000)

ING

$121.10

$134.39 ($22,900)

Quotes obtained on 18 January 2024. Budget Direct and ING had a maximum agreed value of $22,900 for the vehicle model used in the comparison.

What happens when the market value exceeds the agreed value?

Suppose you have an existing agreed value policy and found your car’s market value exceeds the agreed value listed (either through your own research or talking with your insurer). In that case, you may consider switching to market value coverage. This would ensure that any payout you receive in the event of a claim reflects your vehicle's actual value at that time. Alternatively you could increase the agreed value if your insurer allows that.

For example, the quote obtained by Money.com.au from Suncorp estimated the vehicle has a current market value of $25,000, which is higher than the $23,000 agreed value initially listed on the existing policy for the same vehicle. Therefore, the quoted monthly premium was higher for the market value policy than the agreed value policy. Other insurers had appraised the vehicle’s market value slightly above $20,000; therefore, premiums were cheaper for market value policies.

Is it better to insure your car for market or agreed value?

There's no right or wrong choice between market value or agreed value. It will depend on the type of vehicle you have and your personal circumstances. When deciding whether to cover your vehicle for market or agreed value consider the following:

Your car’s age and condition

If you own an older car with some serious kilometres on the odometer, you might insure it for market value to reduce your premium. On the other hand, if you have a new car or a vehicle with non-standard accessories fitted (which would cost more to replace), consider insuring it for an agreed value. The same applies to classic and vintage cars due to their rarity and historical value.

If your car is under finance

If you have a car loan, consider insuring your wheels for an agreed value that's at least equal to the remaining balance on your loan. This ensures that the insurance payout can help settle your outstanding debt in the event of a total loss.

What’s your budget for paying for your car insurance

While market value policies are typically more affordable, the payout they provide might be lower. Agreed value policies generally cost slightly more but provide more certainty on how much you’d get compensated if your car was a total loss.

Your risk appetite

There may be times when your car’s market value is higher than the agreed value (when renewing a policy for example), in which case, insuring your car for a pre-agreed amount could leave you underinsured. In a scenario where your car is insured for market value, you want to consider the risk of not having enough to pay the outstanding debt on your vehicle if your car is underinsured.

How insurers estimate market value

Insurers use different information and valuation guidelines to estimate a car’s market value. This may impact your premiums and how much your car can be insured for. For example, if your car’s value is $20,000 and you insure it for an agreed value of $23,000, your car insurance premium would be more than if you insured your car for its market value ($20,000).

How do insurers estimate market value?

Insurers use different metrics to estimate market value. But they generally look at local market prices, current comparable online sales for your car’s make and model, and market trends.

In some cases, they may use recognised industry publications and online tools like Glass’s Guide to benchmark their valuations. In some cases, market value does not include costs of registration and Compulsory Third-Party (CTP) insurance or stamp duty and transfer fees. This is important to note as these may be additional out-of-pocket costs, with the addition of car insurance excess.

How do I know if my car is insured for market value or agreed value?

Check your Certificate of Insurance or policy details for the ‘amount covered’ which is the amount your vehicle is currently insured for. In other words, it’s the most an insurer will pay if you claim loss or damage to your car. See this example below from Bingle which states the ‘amount covered’ is the market value.

Bingle amount covered

Written by

Megan Birot Money.com.au writer

Senior Finance Writer

Megan Birot

Reviewed by

Sean Callery Editor Money.com.au

Editor

Sean Callery

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