Car valuations – how should you value your car for car insurance?

Whether you're planning to buy a Porsche, sell your family car, or insure your business vehicle, it’s essential to know how much your car is worth.

When taking out car insurance there are two valuation choices available to you: market value or agreed value. Each option comes with its own set of advantages and disadvantages, depending on what kind of car you are insuring. So how do you decide how to value your car?

Market value

Market value is the option most commonly chosen by car owners when insuring their vehicle. With this option the insurer determines the market value of your car by using industry guides. The valuation is then used - in conjunction with other factors - to determine the premium on your policy. Other factors considered include the car's security features, whether the car is garaged or parked on the street, and your postcode.

If your car is totally destroyed (written off) or stolen and not recovered, your insurer will reimburse you the market value of the vehicle at the time the loss or damage occurred. This is again determined using industry guides and includes any variations as a result of the condition of the vehicle and any approved modifications or additions made.

You need to be aware that because the amount reimbursed is determined by the market value at the time of the accident or loss, this could differ significantly from the market value detailed on your policy, as a result of depreciation.

A market value valuation can be useful if you have an older car in average condition, or a standard vehicle without too many modifications. However, if you have a new or highly modified car you might be better off using the agreed value instead.

Agreed value

This option involves the car owner agreeing with their insurance company on their car’s specific value, at the time the policy is taken out. If the car isn't new then this agreed value is generally taken from industry guides.

In the event of a claim being made as a result of the car being written off or stolen and not recovered, your insurance company will reimburse you this agreed amount.

New cars and cars with additions or modifications can benefit the most from this option, as it allows you to include extras that generally wouldn't be considered in the standard market value.

Deciding which approach to take is a personal decision. An insurance policy using an agreed value will likely have higher premiums than one using market value, however non-standard vehicles could benefit from this extra cost. The most important thing to remember is to always read your policy documents and weigh up all the pros and cons, financial or otherwise, of both choices, because only you can decide how to value your car.

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