Should You Insure Your Car at Market Or Trade Value?

Many people wonder if they should insure their cars at the market value or trade price. There is no right answer. It all depends on your car and your personal circumstances. These terms are often misunderstood. Let’s start by defining them. The retail value is the amount you paid for the car.

The trade value is the amount you would get (reasonably) for the vehicle if it was traded in for another. For example, 20,000 currency units if the car belonged to your grandmother and you are a rough driver. This is basically the amount a trade-in institution would pay you, taking into account their profit. The replacement value is the price you would pay today to purchase a similar vehicle. This includes trade value, but also private sale.

The average of retail value and replacement value, or 60,000 currency units, is called market value. It is the price you would have been able to sell it for before it was stolen/damaged/ you decide to sell it. (Reasonable is fair and average, not the highest price you are ‘trying’ to get away with.

You have the option to choose whether your car is insured at its current market value or at its replacement value. You will pay a bit more for the latter, and insurance companies will often only replace your car within the first year. It becomes too costly for them after that, as you will see. Each year, you should revise your vehicle. You must adjust your premium to reflect the vehicle’s changing value each year when you insure it. You may end up paying a high premium for a Mercedes Benz for a few years. However, if the market value for second-hand Mercs drops dramatically over time, it might be worth it to save those premiums.

If you inherit a Rolls Royce from your grandfather and it is still in good condition, it could be worth more than the petrol it uses (probably quite a bit) and worth insuring. From the moment you sell your vehicle and pay the middleman who will take it, to when you start driving it off the showroom floor, and the time wear and tear begins to take effect. The trade value method is a reasonable way to value your vehicle. However, you have to remember that you are losing a certain amount because someone else did all the work. If you have taken care of your car, market value could give you a better idea of the car’s true worth. You only need to research comparable makes and models in your local newspaper. The most expensive option is replacement value. If you don’t want another car like yours, it is likely that you will pay more for insurance premiums than what the car is worth.

Choose one of these options. According to the South African Insurance Association, around 65% of cars on the roads today don’t have insurance. Imagine being in an accident with another motorist without insurance. Another option is to make sure your car is fully insured. This is called top-up insurance and it is typically taken up when a vehicle has been purchased with finance. It works like this: The insurance policy you have purchased for your car through finance is transferred to the company that you received your loan. In the event that you have to file a claim due to financial reasons, the insurance company will first pay the finance company. This allows you to be debt-free (to a limited extent). You might also be interested in mechanical warranty insurance, especially if you buy a pre-owned car. However, this policy is only useful if your car is a high-end one. A good service every 10,000 kms for a car that is not a luxury vehicle will save you money.