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Market value vs agreed value car insurance

What's the difference between agreed and market value car insurance?

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Roslyn McKenna
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One of the many decisions you’ll encounter when picking a car insurance policy is whether you should insure your vehicle for an agreed value or for its market value.

Understanding market value vs agreed value

  • Market value: The standard option. Your car is insured for its current market value at any given time, including depreciation.
  • Agreed value: You and the insurer agree on a specific value ahead of time. Your car is considered to be worth this much for the purposes of the insurance policy.

The value you decide upon is the sum insured, which is the total amount of cover you have. This amount will affect when your car is written off, repaired or replaced under the terms of your insurance policy.

If you are involved in an accident and the cost of your repairs is more than the sum insured, your car will be written off and you can claim the total value of the sum insured to spend on a new car, or not, as desired. If you’re in an accident and the cost of repairs is less than the sum insured, your car insurance will cover the cost of the repairs.

Actual cash value vs replacement cost

Market value or actual cash value (ACV) is the default, what your payout will typically be unless you’ve selected agreed value. Actual cash value is the cost to replace it based on how much your car is worth today, which is its original purchase price minus any depreciation.

So if your car was $30,000 brand new but now it’s only worth $20,000 after depreciation, with actual cash value, you’d only get $20,000 to replace it. With agreed value, you can set an amount your car is worth to you, say $30,000, and get that amount paid back if your car is totaled.

Is agreed value or market value best for me?

The right policy for you depends on your situation and you should always consider the benefits and drawbacks of each policy in line with your own needs. However, if you’re having trouble deciding, try considering the following situations:

  • Do you own a rare, vintage, modified or classic car? You probably want agreed value, as it will be much more accurate in reflecting of how much these kinds of vehicles are worth, including modifications and aftermarket extras.
  • Was your car expensive? If your car was a major investment, then agreed value is a good way of protecting it in the long run. With market value you may only be able to recover a fraction of the amount you paid in the event of a total loss.
  • Do you plan on getting a new car soon? Hopefully you won’t have to make a claim before then and you can save time and money by opting for market value.
  • Is saving money your top priority? If so, a cheap car insured at agreed value might be the right type of cover.
  • Do you need a car? Is your car absolutely essential for getting to work, or is it more of a convenience? If it’s a necessity, then agreed value means you know you’ll be able to afford a new one if your current car is written off. Market value may not provide you with enough of a claim payout for a suitable new car.

Which costs more, market value or agreed value?

Agreed value policies typically cost more for a few reasons:

  1. Higher maximums. The agreed value sum insured is typically higher than the market value sum insured. A larger sum insured comes at an additional cost.
  2. Higher car value. Your agreed value will stay the same over time, while the market value will typically decrease. This tends to reduce the cost of market value policies over time, while agreed value policies will not get the same benefit.
  3. Low competition. In addition to this, agreed value policies are not always available from standard car insurance providers, so you might not have as many options. Agreed value may be available as an extra option that carries additional costs.

Compare market value & agreed value policies

Name Product Roadside assistance New car protection Accident forgiveness Safe driver discount Available states
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The AARP Auto Insurance Program from The Hartford
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The benefits and drawbacks of agreed value and market value

Cost is the biggest difference between market and agreed value. Agreed value can be worth it to protect expensive cars from depreciation or being underinsured, but for most standard cars, it’s not usually worth it.

Market value

Pros

  • It’s usually cheaper.
  • Your sum insured is automatically updated to the standard market value.
  • You avoid paying more than you need to.
  • It’s typically more convenient.

Cons

  • Your vehicle’s market value might be less than you think.
  • A well-maintained car might be undervalued according to the market value.
  • In the event of a claim, your payout may be considerably lower than an agreed value policy.

Agreed value

Pros

  • You know exactly how much you are insured for.
  • You are able to insure your vehicle for less than its market value to save money.
  • You are able to cover the cost of modifications, aftermarket extras and other considerations.
  • You can choose your own level of cover to properly reflect the importance and value of your car.

Cons

  • It typically costs more.
  • It requires some form of valuation.
  • Restrictions may apply to the age, value or type of car that can be insured at agreed value.

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