Insure your car for the right value

Possibly the most important consideration when taking car insurance is how much you will be paid out if your car is stolen or written off. In other words, if you need to completely replace it.

This is often a source of confusion among policy holders, and it can come as a real shock to someone to find out that they will be paid out less than they thought when they actually make a claim.

So it’s essential to understand the different types of values against which you can insure your car…

Retail value

This is the actual price you would pay for the car if you were to buy it new from a dealer. It’s the highest amount for which you can insure a car, and the type of insurance that gives you the closest payout to what it will cost you to replace your car.

Not all insurers offer retail value insurance, so it’s worth checking whether this is available or not. If you want the peace of mind of knowing you will be able to afford to replace your car with one that has similar specifications, then you’ll need to use an insurance company that offers retail value insurance.

It’s also important to understand that your premiums will be higher, and that they won’t reduce each year as they would if you were insured for market value (which I’ll explain lower down).

Trade value

Trade value is the lowest value against which you can insure your car. We’ll explain this value before we explain market value as it will be easier if you already understand trade value.

Trade value is the book value of a car. All motor vehicle dealers keep a reference list of what a car is worth to them – this is known as the book value. It’s typically what you will be paid if you trade in or sell a car to a dealer. When dealers sell second-hand cars they pay this book or trade value and then add their own mark-up to arrive at the final selling amount.

Because this value is less than retail value, you’ll pay lower premiums if you insure against trade value. But just be aware that you’ll obviously receive a lower payout.

Market value

Market value isn’t necessarily what you would think it is. In the open market – if you were to sell your car privately – market value would be the price that you could sell it for. But because this can fluctuate from car to car and from person to person, the insurer

So, in insurance terms, market value is the average of retail value and trade value added together. If the retail value is R300 000 and the trade value is R220 000, the market value is R520 000/2 = R260 000.

As you would expect, market value is somewhere in-between retail value and trade value. It’s important to check with your insurer exactly what the market value is that they are attaching to your car in return for the premiums you will pay.