This beginner's guide explains what car insurance is, why it matters, the different types of car insurance available in Australia, and how to choose a policy that suits your needs.
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Car insurance: agreed vs market value explained
Understand the difference between agreed value and market value car insurance, and how choosing the right cover can protect you financially.
One of the most important decisions you'll make when taking out a comprehensive car insurance policy can be whether your vehicle is covered for agreed value or market value.
Understanding the difference between agreed value and market value car insurance can help you avoid financial stress if your car is written off or stolen. Here's what Victorian drivers need to know.
What is agreed value cover?
Agreed value car insurance means you and your insurer agree on a fixed payout amount for your vehicle at the start of your policy. That value is listed on your certificate of insurance.
If your car is declared a total loss – for example, after a major collision or theft – you'll receive the agreed amount (less any excess or outstanding premiums), regardless of depreciation during the policy term.
Agreed value can help provide peace of mind, particularly if you rely heavily on your car for work, family commitments or travel across Victoria. You'll have greater certainty about what you may receive if your car is written off, with the payout amount fixed for your policy period.
What is market value cover?
Market value car insurance covers your vehicle for its value at the time of loss. If your car is written off, your insurer will assess its market value immediately before the incident occurred.
Market value is typically determined by considering your vehicle's:
- make and model
- age and kilometres travelled
- overall condition
- modifications and accessories
- comparable sale prices in your area.
Because cars generally depreciate over time, the payout under a market value policy may be less than what you originally paid for the vehicle.
Agreed value vs market value: what’s the difference?
When comparing agreed value vs market value car insurance, the core difference is certainty versus flexibility.
If your vehicle is new or has a higher insured value, agreed value insurance can help protect you from sharp depreciation in the first few years. For older vehicles that have already experienced significant depreciation, market value cover may be suitable, as the payout is based on the vehicle’s assessed value at the time of loss.
As market value and agreed value policies can offer different features and outcomes, you may find it helpful to obtain quotes for both options and compare them to see which best aligns with your needs.
New or expensive vehicles may be better served by a car insurance policy with agreed value.
How is market value calculated?
Insurers typically use industry data, vehicle valuation guides and recent sales data to determine market value. They assess what it would reasonably cost to purchase a similar vehicle in comparable condition in your local market.
For example, if you're in regional Victoria, sale prices in your area may differ from those in metropolitan Melbourne.
If you disagree with your insurer's assessment, you can provide evidence such as recent listings or independent valuations to support your case.
What about depreciation?
Depreciation is one of the most significant factors affecting car insurance payouts.
New cars typically experience the steepest depreciation in their first few years. Under a policy with market value, that depreciation is reflected in the payout if the vehicle is written off.
With agreed value cover, depreciation during the policy period does not affect the payout amount. However, insurers may reduce the agreed value at renewal to reflect the vehicle's age and condition.
It's important to review your agreed value each year and ensure it still aligns with your expectations and replacement needs.
How does this affect your premium?
The only way to determine how your premium may differ between market value and agreed value policies is to obtain quotes for each policy type and compare them.
When choosing between policy types, it’s important to consider how each option aligns with your personal circumstances, including:
- how much you could afford to contribute toward replacing your car
- whether you have savings available to cover a potential shortfall
- your vehicle’s expected rate of depreciation
Selecting a policy involves balancing the level of certainty you prefer with your ability to manage financial risk.
Does this apply to all types of car insurance?
The agreed vs market value distinction usually applies to comprehensive car insurance policies. Third party property damage, third party fire and theft, and compulsory third part (CTP) insurance generally do not offer agreed value options because they do not cover damage to your own vehicle in the same way.
In Victoria, CTP insurance is provided through the Transport Accident Charge included in vehicle registration. It covers personal injuries but not damage to vehicles.
It's important to review your car insurance policy each year.
When is agreed value a good option?
Agreed value car insurance may suit you if:
- you have a new or near-new car
- your vehicle has low kilometres
- you've added accessories or modifications
- you want greater certainty about the payout in the event of a total loss
- you want to reduce the risk of a payout that may not align with your replacement expectations.
Drivers with financed vehicles may also prefer agreed value cover to reduce the risk of a shortfall between an insurance payout and the remaining loan balance.
When might market value be suitable?
Market value cover may be appropriate if:
- your car is older and has already depreciated
- you're comfortable with some uncertainty around payout
- you plan to replace the vehicle with a similar used model if it's written off.
For drivers with lower‑value vehicles, the choice between market value and agreed value often comes down to personal preference around certainty and risk.
What to ask before choosing agreed or market value
Before selecting your cover type, consider asking:
- What is the current realistic sale price of my car?
- How quickly is my vehicle depreciating?
- Would a lower payout leave me financially exposed?
- Does my car have unique features that increase its value?
Obtaining quotes for both policy types allows you to compare how each option applies to your circumstances.
Reviewing your car insurance each year
Your insurance needs can change as your vehicle ages.
If you initially selected agreed value for a new car, you may later decide to switch to market value as depreciation stabilises. Conversely, if your car appreciates due to rarity or condition, you may want to revisit your agreed value.
Reviewing your car insurance annually ensures your cover remains aligned with your financial situation and the true value of your vehicle.
The bottom line: certainty versus flexibility
There’s no one‑size‑fits‑all answer. The right choice depends on your vehicle’s age and condition, your personal circumstances, and your comfort with uncertainty.
By understanding how agreed value and market value car insurance work, you can make informed decisions and choose cover that aligns with your needs and preferences.
The information provided is general advice only. Before making any decisions please consider your own circumstances and the Product Disclosure Statement and Target Market Determinations. For copies, visit racv.com.au. As distributor, RACV Insurance Services Pty Ltd AFS Licence No. 230039 receives commission for each policy sold or renewed. Product(s) issued by Insurance Manufacturers of Australia Pty Ltd ABN 93 004 208 084 AFS Licence No. 227678.
