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Market value vs agreed value

Everyone wants the best price for their car when the worst happens so let’s take a look at how market value and agreed value insurance policies affect this.

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When a car is stolen and never recovered, or when it’s experienced accident damage that would cost more to repair than the car’s worth, an insurer will pay out a certain amount of money to cover the car’s value.

There are two types of value that they could pay you – these are called market value and agreed value

The majority of car insurance policies will pay out the market value. This is what the insurer decides the value of the vehicle was when it was written off, based on similar vehicles that are on the market at the same time.

Agreed value is the price the insurer agrees to pay based on a valuation figure agreed with you at the time the policy is signed. 

What’s the difference between market value and agreed value? 

Market value changes over time in line with the used car market and depreciation. Agreed value remains the same regardless of whether the market value increases or decreases over the policy period.

If you have an insurance policy with an agreed value, it’s important to review the agreed value when your renewal comes around as the value of the vehicle may have increased. 

Most insurance policies work on a market value estimate as this should, in theory, payout for the policy holder to replace the vehicle with something very similar. However, based on the market at the time, the price realised for the vehicle might not be enough to purchase another car that is closely comparable. Agreed value protects the owner and guarantees that agreed figure is paid. 

To establish how much the vehicle is worth, the applicant needs to submit photographs of the car and if it’s modified or restored, invoices can help to prove the value of the car as well. Sometimes an independent valuation is required too. 

How does the price of market value vs agreed value policies compare? 

Agreed value insurance policies tend to be more expensive as the agreed worth of the vehicle is usually higher than market value. To cover this gap, the insurance premium is likely to be higher to reflect this. 

For those looking to save money on insurance, sometimes an agreed value lower than market rate can be set to reduce the insurance premium, although this is rarely how agreed value policies are used. 

Should I get a market value or agreed value policy? 

Certain types of cars are more suited to agreed value policies than others. Higher insurance premiums for vehicles that fall outside of these categories would not necessarily be worth it. 

Classic cars

Market value for classic vehicles varies greatly so an agreed value will ensure a fair price is paid regardless of market trends. These vehicles can be bought as restoration projects, too, so the value to the owner is higher, reflecting the amount of money invested in the vehicle.

This investment can be reflected in the agreed value if the cost of works can be evidenced along with a valuation that concludes the same figure. Market value does not always reflect the rarity of a classic vehicle so its replacement value would be difficult to establish based on very few examples for sale in a similar condition. 

Performance cars

Rarity and desirability means these vehicles can often appreciate, something market value might not reflect sufficiently. However, they can also experience steep depreciation within the first couple of years from new or nearly new. If the car is written off soon after purchase, the policyholder won’t be able to replace the vehicle with a like-for-like thanks to instant depreciation after driving it home from the dealership.

The owner will essentially lose a significant amount of money if the vehicle is written off within the first year or so, an agreed value provides the owner with some protection. These cars are also more likely to be targets of theft thanks to their high value, increasing the chance of an insurance claim. 

Modified cars

Any modifications should always be declared to an insurer but agreed value policies can reflect the cost of these modifications. Market value will not consider these additional features to increase the value of the car and the owner will not be compensated for these changes without taking out agreed value insurance. 

Kit cars

These are unusual cars that require a lot of time and dedication to build. It can be hard to establish an accurate market value for one-of-a-kind examples so agreeing a value with the insurer will cover the time, money and uniqueness factor. 

Imported cars

Vehicles imported from other countries might have very few similar examples in the same country. This can make it difficult to find any data to base a market value from, therefore an agreed value will provide the owner with the best protection if the car is written off. 

Collector vehicles

Again, these cars won’t necessarily have a market value as the worth of collector’s items varies hugely depending on provenance, condition and rarity. This makes it challenging to estimate how much a collector’s car would sell for at auction so an agreed value policy would be a sensible option. 

How do I get an agreed value policy? 

If your vehicle would be best suited to an agreed value policy there are specialist insurers who cover certain classes of car. For example, classic car insurers tend to deal with agreed values more often but there are few insurers who offer agreed value policies so it might take some searching to find the right provider at a competitive rate. 

The insurer might not always agree with your proposed valuation of the vehicle so it’s okay to negotiate or try a different insurer. Independent valuations can help the applicant and insurer agree on a fair price for the car. 

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Trinity Francis
Trinity Francishttps://www.trinitygfrancis.com/
Freelance automotive journalist and motoring writer focusing on all aspects of automotive content, with particular attention to emerging trends, industry innovations, tech and consumer advice.