Agreed Value
In car insurance the accepted standard in the industry is to insure cars at the current market value of the car. To work out the market value the following equation is used:
Retail Value: Refers to the price a car dealer might be able to sell the car for.
Trade Value: Refers to the price a dealer might pay you should he buy the car from you.
Market Value: Is halfway between the Retail and Trade Values. Market value takes into account depreciation on the value of the car. You therefore need to adjust your car insurance annually to its current market value; otherwise you will be over insured and wasting money as you will derive no benefit from being over-insured.
Agreed value policies are used where the value of your car is agreed on between you and the insurer at the time of taking out the car insurance. It is the same amount that you will be paid out in the event of a total loss such as your car being stolen or written off. It is therefore very different from market value where the value will reduce every year.
Agreed value policies are not issued by all insurance companies and is a specialized field of insurance. Examples where you will find the use of agreed value are for very high value cars, classic and collectable cars and also in the case of modified cars. It can also be used in the case of commercial vehicles such as trucks.
The company may insist on an agreed restricted mileage. Often, with agreed value policies, the premiums will be payable annually instead of monthly.