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Should I insure my car for Retail, Trade or Market Value?

Many people don't understand that you can insure your motor vehicle for different values. The consequences of not knowing enough about the different options can lead to inflated premiums or worse an inadequate payout at claim time.

The difference between retail, trade or market value, are often misunderstood and inappropriately selected given your set of circumstances. Each of these values have their place in the car market.

The aim of this article is to clarify these terms, and explain the implications and appropriateness of each. Thereafter it is hoped that you will have a better understanding to make a more confident decision when taking out your car insurance.

Insurers will let you insure your car at retail, trade or market value − each of these will have an effect on your premium. On the value scale, retail is greater than market which is greater than trade value. As a result depending on which you choose your premium can be either higher or lower − and consequently also your payout in the event of claim.

The following terms are highlighted and explained:

Retail Value

This is the value that the car 'retails' for if you were to buy it from say a dealer on a showroom floor. This retail value includes the markup that the dealer earns on the sale. In other words, the retail price is what the consumer pays for the motor vehicle.

The retail price is the closest value to replacement cost, ie. the nearest amount needed to replace your car with a similar vehicle in the even of theft or write-off.

Therefore if you experience a total loss such as theft or a write-off you will have the best payout if you insured your car at the retail value.

Make sure you check if your insurer will allow you to insure your car at the retail price. This will not always be the case, this is especially true if you put on a lot of mileage or if the car is old.

If your car is new and you insure at the retail value, a year later your premium pretty much stays the same but your retail value has gone down with depreciation. It is therefore an important strategy to get an updated insurance quote based on your depreciated value, at least annually on the anniversary of your insurance policy. This will save you money.

Due to the condition of indemnity, an insurer's role is not to enrich you but to indemnify you or return you to the state you were in before the event of claim. It is for this reason that an insurer will not pay you out more than the value of your vehicle's current worth - as a matter of principle.

retail car value So as an example, if you insured your Golf GTI at a retail value of R330 000, and a year later due to depreciation, the car retails at R264 000 for a like-for-like car of similar mileage and model year as yours (a 20% depreciation in the first year assumed) − your insurer is not going to pay you out R330 000, but rather the R264 000.

Therefore it is in your best interests to ensure that your insurance premium is in line with the shifting retail value. As can be deduced, an insurer will not tell you to pay lower premiums as your car depreciates, it is up to you to call them and get a lower quote.


Trade/Book Value

The trade or book value of a motor vehicle represents the average price that a motor dealer will pay you for your vehicle. This is hence the price that you receive from the dealer. The dealer will then take the car and add a markup and on-sell the vehicle to the public at a retail price higher than your trade value received. They are in business after all!

As can be seen above, the trade value is less than the retail value, so if you insure your car at the trade value you will pay a lower insurance premium on a like-for-like basis compared to insuring at retail value − but you are covered for less.

Market Value

Caution needs to be taken here, as there is a misunderstanding as to what your payout will be if you've insured your vehicle on a 'market value basis'.

please take note The market value calculation used in the insurance industry to calculate your claims payout, is the average of the trade value and retail value. Expressed in a formula and calculated as follows:

Market value = (Trade value + Retail value) / 2

As you can see this calculation can be very different to our perception of market value seen in media publications such as autotrader for example.

Market value in general is a function of many variables, such as mileage, vehicle condition, service history, accident reports etc. and importantly is in the domain of market demand and supply. Some buyer can get lucky with a really good deal and some seller can get a really generous offer, but what is important is the average prices in the market for that vehicle.

There are specialist publications that can be bought at any paperback store which estimates car depreciation rates by make, model and year. Examples of such handbooks include Mead and Macgrouther, the Auto Dealers Digest.

When in doubt as to what you will receive as a payout in the event of a claim, speak to your insurer to find out what your car is insured for i.e. the current 'market value' they place on the car, and then do some homework by getting an idea of the car prices out in the market. If your insurer's value and your deemed replacement market value for the same asset is out of line, consider updating your cover in urgency.

Since the market value is lower than the retail value, you can get a lower insurance premium. In the interests of saving money however it is not advisable to insure your car at a lower amount. Some insurers don't even allow this as it is of no benefit to you.

Applied Example

Let's say you place a lot of mileage on your car − higher than the norm − then your insurance policy payout at any given point in time will be based on either − market, retail or trade value.

But because your car value depreciates faster than average due to your excessive mileage − your payout based on one of these three measures will decelerate faster than the average 'market' itself − thereby leading to you being under-insured very quickly.

Therefore your solution is to get more frequent quotes to bring down your premium in line with your potential payout.


Hopefully the above terms and definitions of insurance values will be better understood. One question you can ask yourself is: "Will I have enough to replace my car if I'm in a total loss situation?" The answer to this question will guide you as to the appropriate value to insure your car at.

However it is important to note that even depending on your choices above, in a total loss scenario it can be likely that you will not have exactly enough money from your insurance claim payout to replace your car unless off course you buy a cheaper vehicle, as vehicle prices are constantly changing, and you will have to pay the excess on your insurance policy.

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