Insurance covers you based on the Retail value, Market Value or Trade Value of your vehicle dependant on the options you choose including or excluding noted extras. This is taken from a system called the Mead & Mcgrouther system generally and they work out the values based on vehicles bought and sold within the prior calendar month.
Retail value: of your car is the price it would ‘retail’ for, were you to buy it from a car dealer. This value is the closest in price to your car’s replacement value – the amount it would cost to replace your car with a similar model, should it ever be written off. The retail value of a car is the highest amount it can sell for.
Trade value: Let’s say you wanted to sell your car, to a dealer, rather than privately. The trade value, or book value as it is otherwise known, is the average amount that the car dealer will pay you for your vehicle. This is an amount less than the retail value of your car.
Market value: it’s generally defined as the price a willing buyer is prepared to pay a willing seller. Market value is almost the average of the retail and the trade values – a variable value based on factors such as the age of your car, its mileage, its condition, and its supply and demand in the marketplace.
So, what happens when my car is written off or Stolen?
Your insurer will pull the Vehicle value as at the date of loss and they will then add any accessories specified (usually depreciated per year) and minus any applicable excess before paying the finance house first and then you the client the balance. If your vehicle is not financed, you the client will receive the full pay out less excess and depreciation.
It is very important if your vehicle is financed to check that the insurance includes credit top up cover where needed, this could be needed if your financed value is higher than the retail value of the vehicle at the time of taking cover. (You can find this out by asking your finance house what the settlement value would be).
Source: Michelle Vivian