Buying a new car is an exciting experience, but many of us might not consider the intricacies of car insurance right away. It’s essential to understand the value your vehicle is insured for, as this can have a significant impact on whether you’re underinsured or not.
The values you can insure for
Understanding the difference between trade-in, retail and market value can help you make an informed decision. The trade-in (also known as book) value is what a dealership will pay you when you trade your car in.
The retail value is the price the dealership could achieve if they sold your car.
Market value refers to the price agreed upon between a willing buyer and seller.
How insurers determine a value
TransUnion’s Auto Dealers’ Guide (formerly known as the Mead and McGrouther guide) provides an indication of the retail and trade values of cars on the market. Some insurers will insure at market value, an approach that might seem attractive due to it having a lower premium. However, this could leave you under-insured, especially if your car is stolen or written off and you’re still in the process of paying it off.
An alternative is to insure your vehicle at retail value while taking out credit shortfall cover. This cover bridges the gap between what you owe the finance house and the value for which the car is insured. Be aware that credit shortfall might not cover interest, a balloon payment, or additions to your car like leather seats, LED headlights, or a roof rack. So, make sure to insure these items separately.
Car valuations can change
Car values fluctuate, meaning your vehicle could be either under-insured or over-insured due to these changes. Therefore, it’s crucial to check in with your insurer about your car’s current value. Consider if you’re comfortable with any gap between what you’d pay for it and the value for which it’s insured.
Wynand van Vuuren, the client experience partner at King Price, highlights that King Price is introducing agreed value insurance. This is an amount agreed between you and the insurer over a 3-year period, providing certainty on the pay-out if your car is written off. Because the agreed value can be up to 20% more than the retail value, your chance of being able to replace your car with a similar one, considering its age, mileage and condition, becomes more feasible.
Previously used mainly for classic or rare vehicles, agreed value insurance provides more certainty, but it does come with higher premiums as the agreed amount will exceed the retail value.
Given that your car is often your second biggest asset after your home, it’s beneficial to monitor its value over time to ensure your premiums are in line with its value.
You can learn more about King Price’s agreed value insurance cover here, and you can click here or WhatsApp us on 0860 50 50 50 to get a commitment-free quote for comprehensive and agreed value car insurance.
