Understanding Car Insurance: Market Value Vs. Agreed Value

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Understanding Car Insurance: Market Value Vs. Agreed Value

We are entering the final few months of 2018 and some of us have already started planning our financial budget for the upcoming year. As a general observation, many Malaysians also renew their car insurance during this period, mainly owing to certain year-end discounts on offer.

Instead of opting for a basic insurance plan, you will be better off by going for comprehensive car insurance coverage. That way, both you and your car are more protected if anything unexpected and untoward happens. You will be covered for not only accidents but for other cases such as theft, fire, repairs, etc.

For a more detailed explanation on the types of car insurance coverages available to you, do check out the blog Beginner’s Guide to Car Insurance: 5 Things You Must Know”.

However, you need to take an important decision when it comes to evaluating your vehicle for comprehensive car insurance coverage. Meaning, do you want to cover your vehicle with its Market Value or the Agreed Value?

Read on to see how a car’s market value differs from its agreed value in order to figure out which one works better for you.

What is Market Value?

Understanding Car Insurance: Market Value Vs. Agreed Value

Market Value is the price that your vehicle would be expected to command on the open market according to its current state. The General Insurance Association of Malaysia (PIAM) is usually the body referred to for this value. It is not the same as the trade-in value or the price that a particular buyer, such as a collector, would pay for a car.

The market value of a car depreciates with time so you will have to expect the payout to also decrease in value.

For example, you renewed the insurance of a two-year-old Honda City in December 2017 at a market value of RM45,000. Unfortunately, your car was stolen 10 months later and you decide to make a claim towards your car insurance policy. Because 10 months have passed, the market value of your car has depreciated from RM45,000 to RM42,500. This will be the amount you will be compensated with.

Related: Car Loan Calculator Malaysia

Should I opt for Market Value?

Opting for market value does have its advantages when we are dealing with older cars in average conditions. Although the market value at the time a claim is made is much lower compared to the figure specified on the insurance policy, the amount will be roughly the same for you to purchase a similar vehicle of a similar standard and condition.

However, problems arise when your car is still under a loan tenure. You will still have to pay the remaining amount of the car loan and in a majority of cases, the amount will be higher than the payout you receive from the market value. Additionally, you still have to purchase a replacement vehicle.

There is also the problem of “under-insuring”. If the sum insured is less than the market value, you will only be partially compensated. For example, your vehicle may be worth RM40,000 but you wrongly think it is valued at RM30,000 thus insured it for that amount. Since you are under-insured by 25%, your claim will be reduced by 25% proportionally.

Related: Hire Purchase Loan Malaysia

What is Agreed Value?

Understanding Car Insurance: Market Value Vs. Agreed Value

Agreed Value is where you and your insurance company go for a fixed value for the car at the beginning of the contract and at each renewal. In the event of a claim being made as a result of a total loss, your insurance company will reimburse you with this fixed amount.

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Should I opt for Agreed Value?

In a majority of cases, owners of new cars or vehicles with custom modifications can gain the most from this option. Agreed value policies ensure that a new vehicle can be replaced with one which is relatively the same, despite the depreciation of value occurred after being purchased.

If you made some custom modifications, you can also include the cost of these extras. This is not something which is usually considered in standard market values.

Going for an Agreed Value will also eliminate the risk of under or over-insuring your vehicle. The downside for this option, however, is it will cost slightly more in your premium payment when compared to coverage based on Market Value.

At the end of the day, insuring your vehicle at Agreed Value eliminates any unnecessary claim disputes as the value has been agreed upon earlier by both the parties.

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