Agreed value is the amount of money that you and your insurer agree your vehicle is worth. It’s a term that is common in car policies.
Imagine your car is stolen and not recovered or gets written-off. Agreed value means you get exactly the amount you insured your car for, less the excess.
You choose the agreed value of your car when you take out a policy, and you can adjust it every year when your policy renews.
This adjustment is simple to make – we usually adjust it for you and send you renewal documents with a new proposed value, which gives you a chance to review the change.
Just like our discussion about sum insured in this series, the agreed value should be set at enough for you to buy a replacement vehicle with the same specifications.
How does this differ from market value cover?
“The benefit of insuring your vehicle for an agreed value is that you know exactly the sum that may be paid out in a total loss event, minus your excess,” says Wayne Tippet, Executive General Manager of Claims.
“It also speeds up the process because we know the figure you have agreed your vehicle is worth, so, provided the damage is covered by your policy, we can pay your claim.
“This differs from market value cover, where the sum we pay out in a total loss event will reflect the exact value of your car on the market at the time of the event.
“With a market value policy, we would need a pre-accident valuation report to work out what the car was worth.
"Because agreed value offers more certainty, it is more commonly used than market value across our brands, AMI, State and NZI.
“Agreed value also protects you from the risk of set and forget. When we adjust your agreed value at the time of renewal, we factor for depreciation and adjust downwards, which means you don’t pay a premium for a higher sum than the market value.
“If, instead of opting for comprehensive insurance, you opt for third party, fire and theft, you will also need to set an agreed value.”
Why should I review the value of my car annually?
Most items become less valuable over time, and the more you drive your car, the more it reduces in value.
“It’s a good idea to check the value of your car annually and check the agreed value stated in your policy,” says Mr Tippet.
“This is the best way to ensure you'll receive enough money for your vehicle in case you need to replace it.
“On the other hand, if it has gone down in value, you might want to decrease the agreed value so it’s not set too high and possibly impacting your premiums. Currently, secondhand cars are holding their value due to high demand, so people might be less likely to decrease the agreed value within their policy.”
The nitty gritty
Without a valuation, insurers don’t know your car as well as you do. We don’t know if it’s more, or less, valuable than the average. That’s why it is up to you to review this and decide its worth.
Maximum and minimum limits are set based on the type of car you want to insure, and you can choose any value in that range.
For some more light reading:
AMI – AMI Car Insurance
State – State Car Insurance
NZI – NZI Car Insurance