Market Value and Car Insurance

Car insurance market value policies are based on depreciating market value. Car insurance market value policies have lower rates but pay less after an accident than an actual value policy.

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UPDATED: Jun 2, 2022

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Written By: Laura BerryReviewed By: Joel OhmanUPDATED: Jun 2, 2022Fact Checked

Here's what you need to know...

  • Market value is the worth of your car before an accident and is the amount you could charge if you sold the car yourself and not through a dealership
  • An insurance policy based on market value usually means less compensation if your vehicle is totaled in an accident
  • Market value is calculated and can be determined through sources such as Kelly Blue Book, Price Digests, national databases, or car auctions
  • Always verify the amount given to you to be certain the market value is accurate, and you are not being scammed

Researching car insurance and choosing the best plan is a complex task with many variables to consider. There is an important aspect that people may not consider when looking for car insurance: market value.

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How does market value influence the cost of car insurance?

When considering which insurance policy to buy, you should decide whether you want an insurer that considers the actual value of your car or one that only takes its market value into account.

The actual value of a car considers all the work you put into it and does not account for the car’s depreciation.

Insurance policies based on the actual value of your car can cost more in premiums but are usually worth the price. If you total your car, you’ll receive a higher payoff if you have a plan based on the actual value of your car.

Insurers will sell policies based on the market value with lower premiums. This is because the market value decreases as the car ages.

By having a car insurance policy based on market value, you won’t get enough compensation to buy a similar vehicle if your insurance company decides to write off your car.

So although you are paying less out of pocket, if you get into a devastating accident, the insurance company will gain money, and you will lose it. There are pros and cons to both types of policies, and you  want to make sure you are set up to get your money’s worth for your vehicle.

If you buy an insurance policy based on the market value of your car, you should be conscious of what time does to market values.

Every two years you should have your car appraised to find out its market price. If it is lower than the retail price you paid for the car plus its depreciation, you should contact your car insurance company and ask if your rates can be lowered to ensure a fair price. Since so many factors can determine the cost of a rate, there really isn’t anything to lose by seeking an appraisal.

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What does the market value of a car mean?

If you are in a bad accident and your insurer decides to total your car instead of paying repair costs, they are required to pay you your car’s fair market value minus your deductible, the amount you agreed to pay out of pocket before your insurance takes effect. The condition of your car, as well as market conditions will ultimately determine your provider’s valuation. A car in poor condition will get a low estimate from any qualified organization.

The insurance industry uses various means, such as databases, the price of similar cars, and other experts to calculate the worth of your car. Sometimes the agents assigned to calculate your car’s market value make mistakes and may come up with a number lower than your car is worth. It is always a good idea to browse and talk to an expert.

If you think the insurer’s estimate is too low, collect documentation to prove its worth and go talk with your insurance agent. Insurance companies want to settle with you instead of going to court over the issue.

How do I find the market value of my car for insurance?

Three of the most popular are Kelley Blue Book, the National Automobile Dealers Association (NADA) Guides, and Edmunds. These sources use sales from across the country to calculate the estimates listed in their pamphlets and books.

Each of these sources will give you a slightly different market value, so the best way to use them is to take an average of the three figures.

Check Out Various Databases

The databases you can use to calculate market value are based on the price people asked for similar cars.

People can ask for whatever purchase price they want, so this doesn’t give a true estimate of your car’s true market value.

Also, these prices are dependent on entering the correct information for your car. If this doesn’t happen, the estimate won’t be accurate. If you are seeking the most accurate valuation report, consider seeking consulting an expert who has plenty of experience with vehicle values, as they may have a better contribution.

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Go to Auctions to Find Out What Similar Cars Are Selling For

If you go in person, get copies of the prices of the cars for sale. If you go to websites, make sure you use the advance search and enter the exact information for your car.

You should go to multiple sites to get an accurate comparison, so be careful to enter the same data into each site. You will want to make sure everything is accurate, from the vehicle identification to vehicle conditions.

As with the market values you find in Kelly Blue Book, Edmunds, and the NADA guides, once you get market values from a variety of sites, take an average and use that as your estimate.

What should I keep in mind about the market value of my vehicle?

Some people claim that insurance companies choose whichever data suits them best when calculating the market value of a car. Because the world isn’t as honest as it should be, you should keep a cautious eye out for that.

If your insurance company uses the databases mentioned above, ask to see the reports. Scrutinize these, looking for erroneous or missing data.

Whether it was an honest mistake or an attempt to falsify the data to get more money from you, an erroneous report could lower the market value of your car resulting in less compensation for you.

You’ll also want to always keep in mind that depreciation will play a role in what your car is worth. When it comes to cars, we don’t see concepts like compound interest come to play. Car values may go down with time, but that doesn’t mean that you still can’t get a fair assessment.

Remember that the market value is only one of the things you should consider when buying car insurance.

Your driving record, credit report, sex, and age are just a few of the other variables you should think about when weighing your options.

Be sure not to focus on just one aspect because then you won’t get the best deal overall.

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Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.

A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Written by Laura Berry
Former Insurance Agent Laura Berry

Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP® Joel Ohman

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