How much is your vehicle worth?

So, you are thinking of buying car insurance but you have no idea of how the whole process of buying insurance works.

Well, the truth is before you take what you consider to be the best insurance option; you have to understand that your car has three different values. Not knowing these different options cou0ld result in you paying hefty car insurance premiums you never expected.

So what are the different values?
Insurance companies will let you choose whether you want to insure your car at retail, trade or market value. Your option will effect on your monthly premium and your pay-out in the event of a claim. Sounds like something familiar? Don’t get confused let’s unpack these three options.

Retail value
This is the value of your car when stationed at a car dealer’s showroom. Simply put, it is the amount of money you pay for your car. The retail value of your car is determined by its age, condition and the number of kilometres it has travelled. If your car is insured at retail value and you happen to experience a total loss through theft, hijack or write-off in an accident, the money you will receive from your insurer will be determined by its retail value. This means you can be able to replace your car with similar vehicle.

Market Value
This is usually lower than the retail value. When deciding the market value of your vehicle, insurers use variables such as mileage, service history, accident reports and the demand and supply matrix. Offers on the market can differ, sometimes low, sometimes high but what really matters is the average prices in the market for that particular car. Because market value is always lower, insuring your car at this value means you pay lower premiums. This might sound like a good idea but remember when it comes to car insurance; it’s not advisable to insure your car at a lower amount.

Trade Value
The trade value, also known as book value is the amount a dealer is likely to pay you when you decide to sell your car. It is the lowest value at which you can insure your car. Because trade value is lower than retail value, premiums for cars insured against trade value are generally low. Also, just bear in mind that lower premium usually means lower payout.

Hopefully, by now you have a better understanding of the terms you will encounter in your hunt for car insurance. Bear in mind that when getting car insurance, you should get one that best suits your needs.

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The iHound