Car Insurance Value
Depreciation is not a nice word, especially not in relation to the value of your car. However, it is important to know how depreciation affects you when it comes to car insurance. Depreciation describes the effect that wear and tear, usage, mileage and economic conditions have on the value of your car.

Value Loss
It is generally agreed that new cars lose up to 15 percent of their value once they are driven out of the dealer’s showroom. That is scary stuff! Essentially this means that you need to take into consideration the rapid depreciation in value of a luxury or top-of-the-range car model. Generally, while older cars are worth less, their depreciation in value is less rapid.

A report released in 2007 revealed that some models of brand new cars reduced by 10% to as high as 40% within the first year of ownership. So not only should you take the depreciation rate of a particular car into account when buying a new car but also when you insure the car.

Retail, market or trade value – what is the difference?
Determining the value of your vehicle is usually based on its price. But what is its real value? There are three types of values that are taken into consideration in the car insurance industry: retail value – the price a car dealer might be able to sell your car for today; trade value – the price the dealer will give you should he buy the car from you and market value - the price you can get if you sell your car yourself secondhand; this is also known as replacement value. Basically, market value is the average between retail and trade values.

If you go to a car auction today, you will find that these values aren’t always reflective of a vehicle’s true value but it is very dependent on the economic circumstances of the day. During difficult economic times people are looking for cars that are cheaper to run and the luxury 4X4 is not going to get the nod of approval here. It’s the age old market principle of supply and demand.

So what value do you insure for?
Most insurers will insure your car for its current market value. This means that in a year’s time, should your car be written off you will not be able to replace it with a car of similar value. It is an important point to remember as the insurance company should reduce the insured value of your car every year in line with the current market value. You should therefore pay less for your car in insurance. Don’t leave it up to the insurer to reduce the value, review your insurance yearly and ask them to implement the change.

Insuring your car at retail value means you will receive a higher repayment value if your car is stolen or a write-off but you will obviously pay a higher premium every month. Not all insurance companies offer the option of car insurance at retail value so you need to check this before you make a final decision.

You decide
Weigh up all the pro’s and con’s before you decide at what value you are going to insure your car. Shop around on the internet and compare the different products available and don’t forget to check if the company offers the different options of insurance value.

Perspective
You also need to remember that there are many other factors that will ultimately determine the premium you pay. Retail or trade value is only one of the factors car insurers take into account. Your age, gender, insurance claims record, where you live and the security measures you take all play their part.