Insurance explained: what is agreed value?

Agreed value is a term often used within the motor insurance industry, but also one that many owners don’t fully understand. To avoid confusion when it comes to your insurance renewal, we’ve put together this simple explanation. 

Market value vs. agreed value – what’s the difference? 

In simple terms, market value will show a value on your policy schedule, and this will be the maximum amount payable in the event of a total loss. 

By contrast, agreed value is when, at the start of the policy, a vehicle’s value is declared to and agreed with the insurer. It then becomes fixed for the policy period – 12 months in most cases. This will be the amount payable if the vehicle is destroyed in an accident, a fire or is stolen and not recovered. 

With an agreed value policy, the insurer commits not only to settling a total loss claim on the initially agreed figure, but it also builds in the provisions to extend the protection available. 

The agreed value can be altered during the year if the market moves and the vehicle appreciates in value, necessitating an increase in the level of cover.  

How does an insurer agree the value? 

For brand new vehicles, the value is simply based around the vehicle's sale price. In other words, the agreed value figure reflects the cost of the car as delivered to you, factoring in all options and specifications choices. 

For older cars, things are a little more complicated. When deciding upon a valuation, insurers and brokers will make use of a wide variety of resources including auction results, as well as their network of clubs, dealers, and specialists. 

Individual or personalised vehicles can also be difficult to value. For owners looking to insure such vehicles, agreed value can be a particularly beneficial choice.

Do values need to be monitored year-round?

Simply put, not if your car is less than 2 years old, and worth less than £750,000. In this instance, an insurer will replace your vehicle with an identical new vehicle or pay up to the agreed value figure – whichever is higher. Of course, this won’t be the only scenario owners are likely to face:  

  • For vehicles aged 2–15 years old, worth below £750,000 – insurers will pay up to 150% of the agreed value to replace your vehicle with a comparable one 

  • For vehicles aged 2–15 years old, worth over £750,000 – insurers will pay up to 125% of the agreed value to replace it with a comparable vehicle 

  • For vehicles over 15 years old – insurers will pay up to 125% of the agreed value, or £250,000, whichever is less, to repair the vehicle to its pre-accident condition 

  • For vehicles that have been partially damaged following an accident or other insured incident – insurers will pay up to the agreed value figure for the car to be repaired to its pre-accident condition. 

While keeping the above in mind, it is still advisable to monitor the market regularly. This will ensure that any sudden and significant changes to the value of your vehicle can be reflected in your policy cover.

Does agreed value cost extra?

The costs of agreed value vs. market value will vary between insurers and brokers. At Lockton, we don’t charge any extra premium for an agreed value policy, so there is no financial disadvantage in arranging your cover this way.

For more information, please visit our Private Clients (opens a new window) page, or contact: 

Andy Couper, Head of Specialist Motor Trade 

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