Insurance
Agreed Value or Market Value: The Clause That Decides a Total Loss
Under one wording the sum is fixed when the policy is written. Under the other it is calculated after the crash from a depreciation database. The difference only appears once.
Two policies can cost the same, cover the same car and produce settlements tens of thousands apart. The clause responsible is not in the price. Under an agreed value wording the payable sum is fixed when the policy is written. Under a market value wording it is worked out after the loss, from a depreciation database, using mileage and service history.
What each wording does at a total loss
A specialist insurer describes the two mechanisms plainly. Under market value cover, the insurer consults a depreciation database and takes account of the car's mileage and service history to arrive at a settlement figure at the time of the claim. Under agreed value cover, the owner receives the amount agreed at the start, regardless of whether the vehicle has depreciated, less the excess and any salvage retention.
The words after the comma matter. Agreed value does not mean the full sum arrives untouched: the excess is deducted, and if the owner keeps the salvage its value is deducted too.
| Step | Agreed value | Market value |
|---|---|---|
| When the sum is set | at inception | after the loss |
| What sets it | evidence and agreement | depreciation database |
| What can reduce it | excess, salvage retention | mileage, history, condition, market |
| Room for dispute | little | the entire figure |
| Reviewed | at renewal | never, it is recalculated each time |
What it takes to set an agreed value
The valuation is not simply asserted by the owner. The insurer looks at comparable vehicle prices from research data, at what has been spent on the car, and at its overall condition. Owners may be asked for documentation and photographs, and sometimes an independent valuation report confirming history and condition.
That process has a side effect worth having on its own. The file it creates, photographs, invoices and a dated valuation, is the same evidence that answers a buyer's questions at resale, where published trade discounts for missing history run from 15 to 40 per cent.
The failure case nobody expects
The obvious risk with agreed value is being underinsured because the car has depreciated. The real risk on this class of car runs the other way. The same insurer warns that if a vehicle appreciates significantly, an agreed value can end up well below what the car is actually worth.
Take a car agreed at 250,000 that appreciates 8 per cent a year and is not reviewed:
| Year | Market worth | Agreed sum | Shortfall |
|---|---|---|---|
| 0 | 250,000 | 250,000 | 0 |
| 1 | 270,000 | 250,000 | 20,000 |
| 2 | 291,600 | 250,000 | 41,600 |
| 3 | 314,928 | 250,000 | 64,928 |
Three years of not doing the paperwork costs 64,928 in this example, which is 26 per cent of the original sum. The insurer's own remedy is straightforward: the valuation can be reviewed at renewal to reflect changes in value, and on a car whose value is moving, that is an annual task rather than an optional one.
Which wording suits which car
- A current model that is depreciating normally: market value tracks it and agreed value has less to add, though it removes argument at the worst possible moment.
- A limited run car trading above list: agreed value, reviewed every year. A depreciation database is the wrong instrument for a car the market prices above its own list price.
- A car with an unusual specification or history: agreed value, because a database does not know what was spent or what is rare.
- A car being stored long term: agreed value with a review, since the market may move considerably while nothing about the car changes.
Questions readers ask
What is the difference between agreed value and market value cover?
Agreed value fixes the payable sum when the policy is written, based on evidence and agreement. Market value calculates it after the loss from a depreciation database, taking account of mileage and service history. One is settled in advance, the other is settled during a claim.
Does agreed value pay out in full?
It pays the agreed amount less the excess, and less the value of any salvage the owner retains. Those two deductions apply under either wording.
What evidence do I need?
Insurers look at comparable prices from research data, at what has been spent on the car and at its condition. Documentation and photographs are commonly requested, and sometimes an independent valuation report confirming history and condition.
Can an agreed value be too low?
Yes, and on this class of car that is the more likely failure. If the vehicle appreciates and the figure is not reviewed, the settlement lags the market. A car agreed at 250,000 that gains 8 per cent a year is 64,928 short by year three.
How often should it be reviewed?
At every renewal, which is when the insurer allows the valuation to be revisited. On a car whose value is moving in either direction, treating that as optional is what creates the shortfall.
Is agreed value always better?
Not automatically. On a current model depreciating normally, market value tracks the car reasonably well. Agreed value earns its place on limited runs, unusual specifications and stored cars, where a depreciation database is the wrong instrument.
Sources
- Hagerty UK, do I need agreed value, for the definition of both wordings, the evidence used to set an agreed value, the deduction of excess and salvage, the review at renewal and the warning about appreciating vehicles.
- HPI, the value of a service history, published 25 October 2018, for the 15 to 40 per cent trade discount range applied to cars without documented history.