Picture this. Your car which you have been using for three years has a comprehensive insurance policy that is about to expire and because you are a safety-conscious and forward-thinking individual, you are already working towards renewing the comprehensive insurance and all the other relevant documents and making financial plans for that. Then it crosses your mind: ‘I have been using this car for the past three years. Surely, the value must be a lot less than what it was when I first bought it.’ Of course, you’re thrilled! Who wouldn’t be? A lower value for your car equals lower premium payable. At least, you can save that extra and use it for something else. That’s right! As a prudent person who always wants to maximise the use of his available funds, that’s how you should be thinking! So hypothetically, if the car cost you Three Million Naira (N3,000,000) three years ago and it is depreciating by 20% annually, then by the end of year three it should be valued at One Million, Two Hundred Thousand Naira (N1,200,000) which is at this point the ‘Depreciated Value’.
Now let’s picture another scenario. For some reason, you would like to sell the same car after you have used it for three years. You have properly maintained this car and you would consequently want to get for it a price that is competitive enough so that you would not lose out and you are able to buy yourself a great car as a replacement. So you do your homework. You consider the value of your car in the market, get estimates from various websites, you ask around and come up with the pricing of Two Million, One Hundred Thousand Naira (N2,100,000) which at this point is the ‘Replacement Value’ of that car.
Like the two scenarios painted above, it is very likely that valuing your car at the replacement value at the point of insurance will result in paying a higher premium than valuing it at the depreciated value and so it seems wiser for you to insure your car at the depreciated value. But what really is the right value to use and why?
The answer is simple! Valuing your car at the replacement value is recommended. Valuing your car at the right price will save you from the dangers of under insurance. Under insurance refers to inadequate insurance coverage. No one wants to be involved in an accident but if an asset that is under insured is involved in an accident and a claim is made, the asset owner is being set up for some losses. In a case like this, claims may exceed the maximum amount that can be paid out by the insurance policy and the holder of such policy loses in this regard. Such loss may far exceed the amount saved in premium from underinsurance. It is therefore very important to ensure that your car is properly valued regardless of premium savings.
Need more information on this or on our various motor policies? Call us on 0700 AXA MANSARD (0700 292 6267273) or send an email to Need more information on this or on our various motor policies? Call us on 0700 AXA MANSARD (0700 292 6267273) or send an email to ccare@axamansard.com and we will guide you properly on what you need to do. You can also talk to any of AXA Mansard’s financial advisors for more details or reach out to us on any of our social media platforms.
