Agreed or market value car insurance? Taking the short-cut could cost more
Agreed vs market value – it's the small but mighty decision you make when taking out car insurance, and it can make a huge difference to your policy price and claim.
Finding a genuine personal finance hack can sometimes feel like finding a unicorn - and in this economy, I wouldn't blame anyone searching for a bit of magic.
So it's with great pleasure that we share this corker of a conversation between licensed financial influencer Queenie Tan and Finder's own personal finance expert Sarah Megginson.
In a wide-ranging chat about car insurance in general, they honed in on agreed vs market value -- and what you learn next might save you from making a costly mistake.
"Insurance providers have a lot of data that they look through, and this can impact the insurance that you pay," says Queenie.
"With agreed vs market value car insurance, one's usually cheaper. So why is that?"
Agreed vs market value
The choice of either agreed or market value can significantly impact the price of your premium, so it's important to understand what you're, well, agreeing to.
Agreed value is when you insure your car for a set, specific amount that both you and insurer agree it's worth.
Market value means that if an accident happens, your insurer will consider the car's market price on the day of the claim to determine your car's value.
Most of the time, market value policies can cost a little less than policies based on agreed value.
But it's important to not judge a book by its cover.
As Sarah explains, a cheaper price doesn't always mean better value.
"My mum got really burnt by this."
Sarah's mum had a car that she estimated was worth about $10,000 and she had a car accident. "She had a market value insurance policy and the car was a write-off," Sarah explains.
"The market value that the insurer agreed to pay out was $6,800 – quite a bit lower than she expected. She had an excess of $800, so once that was paid, she got a payout of $6,000."
With a $5,000 loan outstanding against the car, she walked away with just $1,000 after her accident.
"It was a really poor experience for her. If she'd had an agreed value policy, she may have gotten a much bigger payout," Sarah says.
Which car insurance policy is right for you?
At the end of the day, as Sarah notes, it's a personal choice you should make and should be guided by your circumstances and priorities. Some insurers, like Youi, aim to explain all the options so you can make an informed decisions when choosing car insurance that suits your particular vehicle and your individual circumstances.
"If you want a really cheap policy, then market value might be a better option. If you're happy to pay a bit more to lock in that certainty, then agreed value might be a better option."
Agreed vs market value isn't the only thing that impacts the price you'll pay for your policy, adds Queenie – other factors like your age, your driving record and where the car gets parked at night can change the "risk" of your policy and therefore, the price.
"[Your premium amount] all depends on the insurance company and what they take into account. Not all insurers are the same, that's why it really pays to shop around. Different insurers have different pricing," Queenie says.
"That's why I like the Finder tool, it's good for that. It pays to definitely do your research, have a look around, see what's available and try to get a good deal."
We've made it easy to compare car insurance policies and get quotes from Australian insurers so you can get the best deal for your needs.