Welcome to the September edition of Ask the experts. You can subscribe to Money Matters here.

An agreed value car insurance policy generally has higher car insurance premiums as the agreed value for your car is usually higher than what it would sell for on the open market (market value).

Agreed value is generally only available for cars aged less than 10 years old.

Insuring your car at market value will reduce your premium but may provide less certainty about the amount of money you will receive in the event of a payout.

You should chat to your insurance provider for further information, and to make sure you have the right cover to suit your personal situation.

There are other factors you need to consider as well. Check out the case study below to learn more.

Melissa and Stan both purchased a comprehensive type car insurance policy on the 1^st of February 2021*.

When the policy was purchased, Melissa and Stan chose to pay the premium for the car insurance policy for the full year up-front.

As Melissa and Stan’s car is aged less than 10 years old, they took advantage of the opportunity to pay a little extra premium to select the agreed value option. In their case, the agreed value that the car was insured for was $10,000.

Two (2) months after the car was purchased (which was comprehensively insured), Melissa was involved in a serious accident that was not her fault. The car sustained significant damage.

Soon after the accident, the car was towed to a repairer where quotes for the repair work were completed.

The cost to repair the car including all parts and labour exceeded the value of the car, making it uneconomical to repair, and as such deemed to be a ‘write-off’ or ‘total-loss’ by the insurer.

When a car is deemed to be a total loss, the wrecked car becomes the property of the insurer, and the insured (in this case, Melissa and Stan), would receive a pay-out of the agreed value amount which is $9,000. This represents the $10,000 agreed value sum insured, less the policy excess applicable, which in this case was $1,000.

Bear in mind that for other policyholders, the excess amount can vary based on age, inexperience, and other factors. For example, a younger driver may not have been declared on the policy. This generally attracts a higher excess.

If Melissa and Stan decided to pay the premium for their comprehensive insurance policy monthly when they first purchased the car and arranged insurance, the pay-out circumstances would have been slightly different.

If say, for example, their monthly premium instalment amounts were $55.00 per month, and at the time of the loss, they had 4 months still to run on their policy, a further $220 would be deducted from the total settlement amount.

Therefore, they would receive $8,780 as full and final settlement for the claim.

National Seniors Australia General Manager, Chris Grice has over 25 years’ experience in the Financial Services Industry specialising in insurance.

More older Australians are on the roads than ever before. While sorting our your car insurance is important, selecting the right vehicle for your needs is also essential. 

*The above examples do not consider additional costs associated with financing the purchase of your car. As mentioned earlier, it can be a good idea to insure your vehicle at an agreed value that is at least equal to the amount left on the loan. Always read the relevant Product Disclosure Guide (PDS), Target Market Determination (TMD) or talk with your insurance provider.