Why you won't get your car's purchase price from your insurer
If you write off your car in an accident and expect your insurance company to pay out the price you paid for it, you may be in for a shock.
The Insurance and Financial Services Ombudsman fields regular complaints from New Zealanders who are upset to find that when it comes time to claim, their insurer will only pay what the car was worth at the time – not what it cost to purchase it.
There are two main types of vehicle insurance cover. The first are agreed value policies, in which the insurer and the owner agree on the value of the car. This is usually adjusted down each year as the car gets older. This type of policy is becoming more common.
The second, and historically most prevalent, type are market value policies, where the insurer will pay the market value of the car at the time of the accident or damage. But the premiums paid by the owner are often still based on the value of the car when the policy was taken out.
Insurers usually determine "market value" with independent valuations from specialist valuers, who take into account the car's condition and any modifications made to it. But these valuations are often disputed by car owners.
In one case heard this year by the Ombudsman, a couple took out a policy with an agreed value of $15,000 in 2011.
Five years later, they claimed when their car was a total write-off due to flood damage and were paid out $9300.
They argued that they should get the full original amount because letters telling them that it had dropped each year had not been sent to the right address. They were eventually given an extra $1300.
In another case, a man took out a policy for his motorbike, which he and the insurer agreed at the time was worth $24,000.
When he wrote it off four years later, the insurer offered $15,516. The owner argued that the insurer had represented the policy as an agreed value policy and said he was entitled to $24,000.
But he could not provide any documentation to back up his argument and his complaint to the Ombudsman was not upheld.
"With car insurance, it's important to understand what type of policy you're signing up to and what level of cover you will have if your car is damaged or written off. Read your policy carefully. If you are in doubt about the amount your vehicle is insured for, on an agreed value or market value basis, discuss this with your insurer," Ombudsman Karen Stevens said.
"At each renewal, you should review the amount your car is insured for. The insurer may adjust the sum insured or agreed value on the policy each year. However, if it doesn't happen automatically, you may find if you make a claim that the car isn't worth as much as you thought it was and you have been paying more in premiums than you should have," she said.
"If your car is written off and your claim is accepted, most policies will pay you the 'market value' of your car - or what the car is worth if you tried to sell it immediately before the damage - which is likely to be less than the amount you originally insured your car for. If you disagree with this amount, and the valuations obtained by the insurer, consider contacting a registered vehicle valuer to get an independent valuation at your own cost."
John Lucas, of the Insurance Council, said owners should pay attention to their policies.
"Check your vehicle's market value and make sure that it corresponds to the sum insured shown on your insurance policy renewal."
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