Key decisions

Agreed value or market value?

One of the biggest questions when you shop for car insurance is what value to place on your car. Many members have told us they don't find the companies helpful here. There are two options: market value (indemnity insurance) or agreed value.

Market value (indemnity)

Some car-insurance polices are indemnity policies, which means that if a vehicle is written off the insurer will only pay out on the current market value of the vehicle. This would be assessed at the time of the loss, using a pre-accident valuation that is carried out by a registered motor vehicle dealer. You can have a nasty surprise if the valuation is substantially less than what the vehicle is insured for (and the amount your premium is covering), unless you have an agreed value policy.

It works the other way round too. If your vehicle is insured for more than its market value, then you may be paying too much in premiums.

When you renew your policy make sure that the value of your car is decreased accordingly. This may mean some extra work for you (if you have to get a valuation) but it could save you money.

Agreed value

Most insurers now provide this type of policy, but you may have to ask for it. When you take out the policy, you agree with the insurance company on what you think the car is worth (agreed value). This means you know the amount you'll be paid out if the vehicle is written off.

Your insurer should continue to review the value and suggest an amended agreed value at each policy renewal. You can choose to accept the new valuation or ask to have it changed.

An agreed value policy can work in your favour. Say your car is insured for $3,000 agreed value, but is really only worth $2000 in today's market. In the event of a total loss, you would be paid the full $3000 (but you would have been paying a higher premium based on this value).

Choose the right excess

The excess is the amount of each claim which you have to pay yourself. The standard excess for drivers over 25 is $300 to $400 with most companies.

It really hurts the wallet if young or inexperienced drivers make a claim. Several companies’ standard excesses vary from $300 for the over-25s to more than $750 for younger drivers. And most companies have additional excesses for inexperienced drivers as well as for those on learner and restricted licences, which can add up to $1500 to the standard excess.

Tip: Shop around. Make sure you check the companies’ policies: the companies with the cheapest premiums don’t always have the lowest excesses. Some companies allow you to pay a voluntary (higher) excess that will lower your premium.