Taking out car insurance doesn't have to be complicated, but it’s good to understand the different options available.
For example, you might buy cover for damage to your car and other people’s property, or just for damage to other people’s property.
And when insuring your own car, you can choose to insure it for an agreed value or market value.
So what’s the difference?
If you choose to purchase an agreed value car insurance policy, your vehicle will be insured for an agreed value set at the time you take out the policy. This figure won’t change during the term of your policy, most likely 12 months, and will be reviewed when you renew the policy. This means that if your car is stolen and not recovered, or is damaged beyond repair, your insurer will pay you the value you previously agreed to (minus for example, any excesses, instalment payments, money owing to credit providers or outstanding premium), to put towards a new car.
The way agreed value is calculated differs slightly from insurer to insurer so it’s always a good idea to read the Product Disclosure Statement to make sure you understand how it is calculated in the event you need to claim.
A market value policy means that the value of your car will be determined at the time of a claim. This means that your insurer will pay you an amount they determine your car to be worth at the time it’s written off, or stolen and not recovered. This amount may not include warranty, stamp duty, transfer costs or dealer profit; so make sure you check with your insurer before you choose a policy.
How a claim may be paid
Let's say you bought your car for $25,000 and it’s then written-off in an accident. And your claim is subject to an excess of $500.
If you had insured your car for an agreed value of $25,000, your insurer would pay you $24,500 (the agreed value of the car minus your excess).
If you’d insured your car for market value, your insurer would assess the value of the vehicle at the time of claim, based on the make, model, age, condition and kilometres travelled.
So in the example above, if you’d insured your car for market value, and at the time of claim your insurer valued your car at $24,000, you’d be paid $23,500 (the market value of the car minus the $500 excess).
Which to choose
Whether you choose to insure your car for an agreed value or market value is completely up to you.
Insuring your car for market value is often cheaper and could save you money on your premiums. Because of this, market value is the more commonly chosen option.
Bear in mind, though, this does not cover the other costs associated with buying another car such as stamp duty, registration and insurance, and dealer delivery charges.
Also if your car is declared a total loss and is still under finance, and your insurance policy's market value reimbursement is less than the amount outstanding, you may be left with a shortfall that you have to cover out of your own pocket. Also keep in mind, if you’re paying your policy via monthly instalments and your car is declared a total loss, all outstanding instalments will be deducted from your settlement.
Often those who have a car that is special in some way – for example, an antique or classic, or with expensive modifications – may choose to insure their car for an agreed value, to ensure they have enough cover for their car’s special features.
Buying a new car
If you are buying a new car, a good-quality comprehensive insurance policy such as Coles Comprehensive Plus cover can offer the best of both options with its new-for-new replacement guarantee for cars up to 36 months old.
This protects you against the rapid depreciation that a new car may experience as soon as it leaves the showroom, but without the higher premiums of an agreed value policy.
No matter what policy you choose, always be sure to take a few minutes to read the Product Disclosure Statement carefully to be sure you understand exactly what you are covered for, and what your policy requires of you.