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Many consumers purchase a policy without understanding what the terms in their policy mean. As a result, the most common claim that the Ombud for Short-term Insurance's (OSTI) office has seen is consumers who are unhappy with settlement offers provided by their insurers when they claim for the loss of their vehicles following an accident or theft. When the policy is taken out, consumers will generally be required to specify for what value they want to insure their vehicles.
The traditional options are the retail value, the market value, and the trade value. Another, less common, option is the agreed value.
What do they all mean? The Ombud for Short-term Insurance breaks down the various values and the implications of insuring one’s vehicle at each respective value.
What is the retail value?
Retail value is what your vehicle would sell for if you buy it from a dealership or the amount it would cost to replace your vehicle, should it be written off or stolen. It reflects the average price for which similar vehicles have been sold recently. The retail value of a car is the average highest amount it can sell for. Thus, insuring your vehicle at this value will result in higher insurance premiums. However, this ensures the highest possible payout when you claim. When you are paid out at the retail value, you will more likely afford to replace your vehicle with a similar make, model, and specifications in a similar condition.
What is the trade value?
Trade value is the value at which those in the motor trade would buy or trade a vehicle, for example, what would be offered to you by motor dealers when you trade in your car. This is generally the lowest value you can insure your vehicle, and it is not the recommended option. However, this would still be a better option than being without insurance cover.
What is the market value?
Market value is determined by averaging the trade and retail values.
To determine the market value of your car, several variables need to be taken into account. These include; mileage, condition, service and accident history, the level of accessories and specifications, and depreciation, which will lead to adjustments being made to the generic value of the vehicle reflected in the auto dealers' guides typically used by the motor and insurance industries.
If you find insuring at retail value to be unaffordable, the market value may be an option. You will probably have a shortfall when replacing your vehicle, but you will be better off than if you had insured your car at trade value. If your vehicle is still being financed, you may experience a shortfall with the finance house after the insurer has settled your claim. In other words, you may still owe the finance house monies. It is, therefore, advisable that if you take this option, you do so after considering all the options and financial implications of each option.
What is the agreed value?
The agreed value is the amount you and the insurer have agreed on. This option is usually used when it may be difficult to establish the value of a vehicle. This includes collectables, vintage, classic, imported, or special edition vehicles.
Generally, where there may not be sufficient numbers or statistics to base determinations of value, it would be better to agree on the insured value when taking the cover.
When you claim, the insurer will pay out the agreed value less the applicable excess, and depreciation would ordinarily not be considered unless expressly provided for in the policy.
Various less common policies in the market provide different levels of cover, including where deposits are covered and included in the payout or where insurers pay more than the retail value. Innovative products exist for different needs and it is advisable to ask your broker or the insurer for all the types of cover available before deciding which cover you need and can afford.
The excess is the first uninsured amount that a claimant pays on a claim and is deducted from the insurer's settlement on a claim. The excess payable when you claim will also influence the level of cover enjoyed or the amount paid out when a claim is settled.
Therefore, it is important for consumers to understand their own particular circumstances and what level of cover would suit them to obtain the most appropriate cover and avoid disappointment at the claim stage. It is also important to remember that, as one's circumstances change, the level of cover should also be re-evaluated and adjusted accordingly.
It is recommended that consumers ask as many questions as possible to understand their insurance policies, read their policy documents, and, when anything is unclear, seek clarification from the insurer or the broker where one is being used.
Questions may be edited for brevity and clarity.
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