Agreed Value vs Market Value Car Insurance: Which to Choose
If your car were written off tomorrow, would you know how much you would get? The answer depends on one choice most people make in a few seconds when they buy a policy.
Agreed value is a fixed amount you and your insurer set when you take out or renew a policy, and it is what you are paid if the car is written off or stolen. Market value is what the insurer judges the car would have sold for just before the loss, and it is worked out when you claim.
Agreed value gives you certainty and usually costs more. Market value is usually cheaper, but you will not know the payout until you need it. The choice only matters for a total loss (a write-off or an unrecovered theft), but that is exactly the claim where the amount matters most.
How market value is worked out
The Insurance Council of Australia describes market value as what your car would likely sell for on the open market just before it was stolen or written off. The insurer works it out at the time of the claim, not when you bought the policy.
To arrive at the figure, insurers typically use industry pricing guides alongside recently sold prices for comparable cars, adjusted for the car’s age, condition, location and kilometres. Moneysmart adds an important point: market value is not the amount you think you could sell or trade in the car for. It is the insurer’s assessment, and because cars lose value over time it usually falls the longer you own the car.
How agreed value is set
Agreed value is a dollar amount you and the insurer settle on when you take out or renew the policy. Insurers usually offer a range based on the car’s value, and a higher agreed value within that range means a higher premium. If the car is written off, you receive the agreed amount regardless of what the car would have fetched on the market that day.
Agreed value vs market value at a glance
| Agreed value | Market value | |
|---|---|---|
| When the amount is set | When you buy or renew the policy | When you make a claim |
| Who sets it | You and the insurer, within the insurer’s range | The insurer |
| Certainty | You know the payout in advance | You find out after the loss |
| Premium | Usually higher | Usually lower |
| Over time | May be reduced by the insurer at each renewal | Falls as the car depreciates |
| Best for | New, modified, rare or financed cars, and anyone who needs certainty | Older, common cars where a lower premium matters more |
An example
The Insurance Council uses a simple example. You insure a car worth $25,000 today, and six months later it is written off.
- With market value, the car may have depreciated to around $21,000 by the time of the claim, and that is what you would receive.
- With agreed value, you would receive the $25,000 you agreed at the start of the policy.
The $4,000 difference is the certainty you are paying extra for.
The agreed value trap: it can fall every year
Agreed value is not fixed for the life of the car. Moneysmart warns that insurers may reduce the agreed value every year as the car ages, and that you should always check the agreed value when you renew.
Its example is worth retelling. A driver buys a new car for $18,000, chooses agreed value so she is covered for the full replacement cost, and renews every year for five years without reading the renewal closely. When the car is written off, the insurer pays $8,000, because the agreed value had fallen each year even though her premium had risen. She cannot find a comparable car for that amount and has to pay the difference herself.
The fix is simple: read the agreed value on every renewal notice, compare it with what similar cars are selling for, and ask the insurer to adjust it if it no longer reflects the car’s worth.
When agreed value can be lower than market value
It is easy to assume agreed value is always the higher figure. The Insurance Council points out that it is not. In the period after COVID, used car prices rose sharply and in many cases market value exceeded the agreed value policyholders had chosen. Some cars also see sudden spikes in demand because of rarity or popularity.
If your car is worth more than its agreed value, a write-off pays the lower agreed amount. That is another reason to review the figure before each renewal rather than letting it roll over.
Why your payout can be lower than you expect
Under either option, the Insurance Council notes that the amount you actually receive can be reduced by:
- your excess, which is deducted from the payout
- any unpaid premium instalments, if you pay monthly
- any finance owing on the car, which is paid to your lender first, with only the remainder paid to you.
If your car is financed, check that the payout would at least clear the loan. If it would not, a higher agreed value, or a policy with new car replacement if the car is new enough, may be worth the extra premium.
Which should you choose?
Agreed value is usually the better choice if:
- the car is new or nearly new, and losing value quickly
- it is modified or has expensive accessories (see 4WD and 4x4 insurance)
- it is rare, classic or in high demand, so pricing guides may undervalue it
- it is under finance, and you need the payout to clear the loan
- you could not absorb a shortfall between the payout and the cost of a replacement.
Market value can make sense if the car is older and common, you want the lowest premium, and you could cope if the payout was less than you hoped.
If you disagree with a valuation
If your policy is market value and you believe the insurer’s offer is too low, the Insurance Council suggests:
- Raise it with your insurer, with evidence such as recent sale prices for comparable cars or an independent valuation.
- Lodge a formal complaint through the insurer’s internal dispute resolution process, described in the PDS.
- Contact AFCA, the Australian Financial Complaints Authority, if the matter is still unresolved. It is free and independent.
The Insurance Council also notes that disputes over vehicle valuations rank among the most common complaints AFCA receives, so you would not be the first to ask.
Related guides
- Comprehensive car insurance: the level where the valuation choice matters most.
- Car insurance excess explained: what gets deducted from a payout.
- Compare car insurance: how to compare quotes like for like.
Frequently asked questions
Should I choose agreed value or market value?
Choose agreed value if you want certainty about the payout, your car is new, modified, rare or under finance, or you would struggle to replace it. Choose market value if you want a lower premium and accept that the payout will be set by the insurer at claim time. Either way, check the figure at every renewal.
What is the difference between agreed value and market value?
Agreed value is a fixed amount you and your insurer set when you take out or renew the policy. Market value is what the insurer assesses your car would have sold for just before it was written off or stolen, worked out at the time of the claim.
Is agreed value always higher than market value?
No. The Insurance Council notes that after COVID many used cars' market value rose above the agreed value their owners had chosen. That is why the agreed value should be reviewed before each renewal.
How is market value worked out?
Insurers typically use industry pricing guides alongside recent sale prices for comparable cars, adjusted for the car's age, condition, location and kilometres, according to the Insurance Council.
Can I dispute my insurer's valuation?
Yes. Give the insurer evidence such as recent sale prices for comparable cars or an independent valuation. If that fails, use the insurer's internal complaints process, then the Australian Financial Complaints Authority (AFCA), which is free.
