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Should I Insure My Car for Its Market Value, Retail Value, or Trade-In Value?

I want to insure my car, but should I choose cover for its market value, retail value, or trade-in value? Don’t get duped into insuring your car for too much or too little. Learn the pros and cons of your options here.

Whether you are buying a new car or trying to save on insurance for a car you already own, understanding the scope of your cover can make all the difference. When you buy car insurance, the insurer often asks you over the phone whether you want to insure it for its retail value, market value, or trade-in value. With little time to think it through, we are often forced to make a snap decision.

As a result, you may be paying too much for cover you don’t need, or you might be underinsured. To figure out whether your car insurance cover is enough, it’s important to understand what market value, retail value, and trade-in value are.

What is a Car’s Market Value?

A car’s market value is an amount that is lower than the retail value and higher than the trade-in value. It can be tricky to determine what your car’s market value is as a few factors play into the cost. Basically, it is the amount you would charge if you sold your car privately.

Another way to think of it is that market value is the price a buyer would be willing to pay, considering the car’s history, age, etc. Things like your car’s mileage, age, condition, and popularity on the market can make the price higher or lower. Because this amount is usually lower than the retail value, your premiums can also be cheaper when you insure your car for its market value.

While your premiums may be lower, your payout will be lower too. Many car owners won’t be able to buy a car of the same value. This is a great way to save money, because of the lower premiums. You could also buy a cheaper or older car with your payout if you’re in an accident or if your car is stolen.

What is a Car’s Retail Value?

A car’s retail value is the price a dealership would sell your car for. This amount is often closest to the actual value of your insured vehicle and the amount it would cost you to replace it. Getting cover from car insurance companies for your vehicle’s retail value can often cost more than other options.

What is a Vehicle’s Trade-In Value?

A car’s trade-in value is the amount a dealership would be willing to pay to purchase it second-hand from you. Insured individuals who choose this option may pay less for their car insurance policy. At the same time, their payout could be too low to replace their car if it is stolen or written off.

Did I Over-Insure My Car?

Of all your cover options, market value is the average price and generally a logical option for circumspect individuals who want to save but still cover their bases. Retail value is the most common value a car is insured for, and can often be the most expensive choice.

Even so, many car owners find it the best option, because they will be able to buy a new car again with the payout. Retail value is also known as the book value because car insurance companies often go according to the manufacturer’s recommended price when determining your payout and monthly premiums.

You may be over-insured if your car is still covered for its original purchase price months later. A car worth R400,000 new could lose as much as R80,000 in value within half a year. You would be paying for R80,000 cover that you don’t need if your car is insured for its retail value.

That said, you would be able to buy a new car instead of a car worth less with this bigger payout. It’s up to you to decide what’s more important to you: saving on premiums, or having a bigger payout if an insured event occurs.

How Do I Know If My Vehicle is Underinsured?

It’s actually possible to get too little cover for your vehicle. Let’s say you buy a car with financing and a 0% deposit. Usually, your debt will exceed the value of your car for a few years. If something happens to your car in that period, your payout might not even cover what you owe your financier.

If you find yourself in this position, gap cover or credit shortfall insurance can be invaluable. This type of cover pays out when your cover isn’t enough to pay the debt you owe to the bank or the company that has financed you.

How to Get the Best Car Insurance Premium Price in South Africa

You could insure your car for its market or trade-in value, but the cut in your payout often doesn’t impact your monthly premium as much as you’d hope. It might not be worth the effort. To get the best premium price, speak to your insurer regularly to update the value of your car as it depreciates, so that you aren’t paying for cover you don’t need. You can also save on insurance by comparing your options with car insurance quotes. Just fill in our online form for a FREE quote today.

DISCLAIMER: The information that has been provided in this article is for informational purposes only. It should not be construed as legal, medical, or financial advice. Facts in this article are correct at the date of publication.

Sources: santam.co.zabusinesstech.co.za;

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