Many people ask whether they should insure their vehicles at market value or trade value. There is no correct answer; it all depends on the car and your personal circumstances. Let's first define these terms, often used incorrectly. Retail value is the price you paid for the car, e.g., 100,000 currency units.
Trade value is the price you would receive (reasonably) if you traded the vehicle in for another, e.g., 20,000 currency units if you're a rough driver and the car was actually inherited from your grandmother. Essentially this is the price a trade-in establishment would give you, taking their profit into consideration. Replacement value is what you would pay to buy a similar car today. It covers trade value but also takes into consideration private sale.
Market value is the average of retail and replacement value, i.e., 60,000 currency units. It is the amount you could reasonably have sold it for before it was stolen/ damaged/ you decided to sell it. (Reasonable means fair and average, not the price you're 'trying to get away with'.)
You can decide whether you want to insure your car at its market value or its replacement value. The latter will cost you a little more; more importantly, insurance companies often stipulate they will replace your car only in the first year or two. After that, as you can understand, it becomes too expensive for them. You should revalue your car each year. When you insure a vehicle, you must keep adjusting your premium in accordance with its changing value. If you start out with a new Mercedes Benz and pay an exorbitant premium for this top of the range car for a number of years, you may find down the line that the market value of second hand Mercs has dropped dramatically and it would have been worth your while rather to bank those hefty premiums over the years.
On the other hand, if you inherited a Rolls Royce from your granddad and it's still running, it may soon be worth a lot more than the petrol it runs on (probably quite a lot) and worth insuring well. A car loses value all the time, from the time you trade your old vehicle and have to pay the middle man who takes your car, to the time you drive it out off the showroom floor and start adding mileage to the clock, to the time wear and tear starts to take effect; not to mention the changing market, including the price of new cars and fashion or demand for certain types of vehicles. In summary, trade value is a sensible way to value your car, bearing in mind that you kind of know that you're losing a set amount for the convenience of someone else doing all the hard work. But market value, if you've looked after your car, could be a more realistic indication of what the car is worth to potential buyers. All you need to do is research similar makes and models in local newspapers. Replacement value is the most expensive option and unless you are adamant you want another vehicle just like this baby, you're likely to pay more in insurance premiums than the car is ultimately worth.
But do choose one of these options. According to the South African Insurance Association (SAIA), around 65% of the cars on our roads today are not insured. It's bad enough not being insured, imagine being involved in a prang with another motorist who is also not insured! There is another option for ensuring your car is insured at its real value. It's called top-up-insurance and is usually taken up when a vehicle is purchased through finance. How does it work? If you buy your car on finance, the insurance policy is ceded to the company through which you receive your loan. If for some reason you need to make a claim, the insurer will first pay the finance company to settle the outstanding finance debt, which leaves you debt free (to a certain extent). Another policy you may be interested in investigating, particularly if you purchase a pre-owned vehicle, is mechanical warranty insurance. This policy would however only be of value to you if you're running a up market car. If you're driving a runabout, a good service every 10,000kms will be decidedly more cost-efficient.
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