A quick guide to car insurance and the different value options

Acquiring car insurance may entail more considerations than commonly perceived by motorists. Insurance policies are intricately designed to address particular risks and occurrences, tailored to the individual needs and circumstances of each policyholder. Among the pivotal factors in selecting the appropriate coverage level is the valuation of the vehicle, a determination influenced by various perspectives on its worth.

MiWay Insurance spokesperson Siyakha Masiye sheds light on the diverse “levels of value” integral to car insurance decisions.

These encompass retail, market, trade-in and special agreed value. Masiye said each value option carries specific implications for the insured amount of the car and, consequently, the potential claimable sum in the event of an accident or write-off. The decision car owners make hinges on several considerations, including budget constraints, risk tolerance and the significance of full replacement vs cost-effectiveness.

Masiye emphasised the importance of motorists being well-informed about these value options and their implications on insurance coverage. Equipped with such knowledge, individuals can make informed decisions about their insurance selections.

Retail value

The retail value of a car refers to the selling price on the dealer’s floor as per the TransUnion Dealers' Guide. A car’s retail value will match the purchase amount and the level of value most insured parties opt for when taking out cover.

Having a car insured for its retail value means in the event that the car is written-off and a claim is processed, the insurer will pay the amount needed to replace the vehicle with one of the same make or model taking into consideration the condition of the car and the mileage.

“This level of value generally results in higher premiums compared with other value options,” said Masiye. “However, it is the option that offers car owners the most peace of mind as it provides financial protection to cover the car’s replacement value and is the most effective way to avoid untimely out of pocket expenses.”

Market value

On the other hand, some motorists choose to insure their vehicle at its market value, which is the price it would yield if sold under market conditions. It is the average between the vehicle's retail and trade values. It is lower than the retail value. In these cases, if the insured car is involved in an accident, stolen or damaged beyond repair the insurance payout will be determined based on the car's market value at the time of the incident.

The claim calculation will consider factors such as depreciation, condition and market trends. An easy way to understand market value is to see it as the amount someone would pay for the car if it were to be sold second-hand through a private sale.

As such, insuring a car at market value exposes the insured to more volatility because market values fluctuate over time. So while insuring a car at market value may result in lower premiums compared with insuring it at retail value this typically involves taking on more risk in the long-term.

Trade-in value

Some policyholders may opt to insure their vehicle at its trade-in value, which is the amount the car would yield if it were traded in at a dealership or retail outlet. This is also commonly referred to as the “book value” of the vehicle. Generally, the trade-in value of a car is lower than its retail or market value.

Insuring a car at trade-in value may therefore result in lower premiums compared with other value options but involves a higher degree of risk that will fall on the shoulders of the insured.

Agreed value

Some insurers offer a “special agreed value” option in addition to the more standard levels of cover. In these cases the car owner will enter into an agreement with the insurer that accounts for a predefined value over a specified time. This means if the car is written off or stolen the insured will know exactly what payout to expect in the event of a valid claim.

Typically, these types of insurance agreements are reserved for classic and rare vehicles difficult to replace and not as readily available as modern makes and models. In these cases car owners will be aware that in the event of the complete destruction of their vehicle the chances of the insurer replacing it with a similar vehicle will be relatively small.