When I was working as an Underwriter at a insurance company in Harare, I found myself in a complicated and sometimes confusing situation when clients asked me what value they should put on their motor insurance policy. The vehicle value is pertinent to premium calculation for motor insurance although other factors like driver's age and driving experience can also play a role. However, from my experience in Zimbabwe other factors other than vehicle value are not reflected in the price but are imbeded in the excesses (an issue I will explore another time). It is important to note that you do not always get back the value you are insured for when you lodge a claim.
There are three main types of values you can provide for your motor insurance which are Market Value (sometimes refered to as actual cash value), Agreed Value and Stated Value .
Market Value
This is simply the amount your car would fetch in an open market. This does not include the money an unusual buyer would pay for your car for example a overstated once off offer from a tobacco farmer who has too much money from selling his crop! In short it is what your car is really worth today.
Agreed Value
This is an amount agreed between the insurance company and yourself when you are filling in your proposal form. It is sometimes referred to as Guaranteed Value because the insurance company guarantees to pay an agreed amount in the event of a loss. This means when you are involved in an accident and your car is written off for example, the insurance company guarantees to pay the value you agreed on without any excuses.
Stated Value
This is were things get tricky and were conflicts start. Stated value is the value you provide to your insurance company. However, when your vehicle is insured at stated value, insurance companies settle claims based on which ever is lower between stated value and the market value. Most people assume that because they stated not agreed a value higher than the actual cash value of their car they are entitled to that amount when they claim, but that is not the case. It is also common for people to state a lower value because they want to pay less premiums.
So we go right back to the question: What is the right value to insure your vehicle?
I would say this depends on the type of vehicle you own, the amount you expect to get in case of a loss and the premium you are willing to pay. Insuring your car at the market value is a good option. Take time to investigate the market value of your vehicle before you insure. If you drive an ex-Japanese car for example a Nissan Sunny going for $4,500 on the market, it would be pointless for you to insure it at a stated value of $6,000 because maybe you wish to profit in the event of a loss. The truth is your insurance company will not pay you more than the market value ($4,500) and you would have wasted your money paying more premiums. It is also not wise to insure that car at a stated value of $2,500. Although you will pay less premium, you will get less than what your car is worth when you file a claim.
However, if your Nissan Sunny has been to the body shop and has been modified and you think the value has increased because of these modifications, you can negotiate with your insurance company and insure your vehicle at an agreed value for example $8,000. You might want your policy endosed to show the value agreed for example a simple statement on your policy schedule like the one below
"The insurer will pay the agreed value in the event of an insured loss"
If you are looking at saving on premiums but you are reluctant on getting Full third party motor insurance, you can insure your vehicle at a stated value that is less than the market value of your vehicle. However, when you file a claim do not expect your insurance company to pay you the true value of your car when you go this route.