In this article we take a look at how an insurer will pay a claim should the worst happen. We will focus on what the industry terms a “total loss” claim – that is, where the vehicle is either stolen and not recovered, or damaged in an insured incident to the extent that it cannot be safely or economically repaired. We have previously written about this in more detail here. (opens a new window)
In future articles we will deal with what might happen once a car has been repaired as this raises other questions that not all motor insurers can fully answer.
So let's firstly outline how your car will be valued when you initially engage with Lockton.
We are able to provide agreed value cover automatically under our policies.
This means that the figure shown for your car's value will be fixed for the policy period and this will be the amount payable if the vehicle is totally destroyed in an accident or fire or stolen and not recovered.
This can be applied even to brand new vehicles and it can factor in the appreciation some models face, even when launched, where demand exceeds supply.
We also understand that many specialist and classic cars simply don't depreciate and in many cases, values will increase over time, even for newer vehicles. The agreed value cover that we offer addresses this situation directly, as follows.
For cars up to 24 months old
The policy will replace your vehicle with an identical new one of exactly the same type and specification OR pay up to the agreed value if it is higher than the cost to replace with a new vehicle. This means that if your vehicle has appreciated, you can be sure that you will not suffer financially as the policy will replace your vehicle.
For cars between 2 years and 15 years old and worth below £750,000
The policy will pay up to 150% of the agreed value to replace your vehicle with a comparable replacement.
For cars between 2 years and 15 years old and worth more than £750,000
The policy will pay up to 125% of the agreed value to replace your vehicle with a comparable replacement.
For cars over 15 years old
The policy will pay up to 125% of the agreed value, or £250,000, whichever is less, to repair the vehicle to its pre-accident condition.
If your vehicle is partially damaged following an accident or other insured incident, the insurers will pay up to the agreed value figure for the car to be repaired to its pre-accident condition.
How does this work?
The first thing to do is to talk to us - we will be able to guide you through the whole process.
Lockton is not a valuer of vehicles but we are able to validate data supplied by a third party. We recommend owners clubs as being the best and most reliable source for current valuations but you may wish to consult with a specialist dealer.
If the vehicle is a new acquisition, the purchase receipt will equally serve as basis of value and if the car is brand new, then the price delivered to you will form the basis of value.
How does agreed value differ from market value?
Market value is usually defined as 'the value of the vehicle at the time of the loss'. The value will be reached by the insurer using industry guides to determine the pre-loss condition.
Most motor policies make little or no mention of appreciation and, whilst the second-hand car market has experienced some unusual trends, there are few policy conditions that we were able to identify that explicitly stated how a claim would be settled where the value at the time of claim exceeded the original purchase price.
Similarly, many motor policies limit brand new replacement vehicle cover to 12 months from the date of first registration. Lockton's policy provides 24 months.
We understand that thinking about the worst that might happen to your pride and joy is negative but ultimately, that is one of the main reasons you buy insurance cover – to protect a valued asset. It's therefore worth considering how a major claim would be settled at the same time as considering the cost of the policy.
We realise that the points we make in this, or any single article we may publish on the subject, probably won't alter your view of motor insurance overnight. However, we do hope that they will in some small way, help you to understand why buying insurance just because it 'looks cheap', isn't always the wisest thing to do.
If you'd like to know more, then talk to us today.