Why is 'purchase price' a factor with insurance?

Honest John Back Room » Motoring discussion
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Tue 10 Mar 2009 09:32
Why is 'purchase price' a factor with insurance? - OldSock
It's that insurance renewal time of year again, and I've had a few quotations - both via broker and online.

One question usually aked is for the vehicle purchase price. Sounds fair enough, but what are the implications for both quote and any future payout? Consider the following situations:


1) I win the vehicle in "Tom Champagne"'s Reader's Digest Prize Draw or somesuch. Purchase price zero....

2) The car is inherited or gifted from a relative for a nominal £1....

3) My superior bargaining skills get the car for a knock-down never-to-be-repeated price - say 50% of its market value.....

4) The car is purchased as an ex-lease company car at its written-down value.....


If, in all cases, a payout is based on market value at the time of claim, what's the point of asking for the purchase price?
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Tue 10 Mar 2009 09:48
Why is 'purchase price' a factor with insurance? - BazzaBear {P}
As I remember, I have always been asked for the value of the car, not the purchase price.
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Tue 10 Mar 2009 09:55
Why is 'purchase price' a factor with insurance? - OldSock
As I remember I have always been asked for the value of the car not
the purchase price.


Sadly, what you consider the 'market value' may have little bearing on what the insurance co thinks!
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Tue 10 Mar 2009 10:06
Why is 'purchase price' a factor with insurance? - Hamsafar
If the purchase price is lower than their book value, or current value, then you will get that in a settlement. Maybe they're preparing for hyper-inflation?
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Tue 10 Mar 2009 10:12
Why is 'purchase price' a factor with insurance? - OldSock
If the purchase price is lower than their book value or current value then you
will get that in a settlement.


So in case 1) above, they'd pay out zilch?
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Tue 10 Mar 2009 10:27
Why is 'purchase price' a factor with insurance? - martint123
Likewise, I have never been asked for purchase price by any insurer or web site "best buy" site.
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Tue 10 Mar 2009 10:22
Why is 'purchase price' a factor with insurance? - jbif
As I remember, I have always been asked for the value of the car, not the purchase price. >>


Ditto. Usually the form says "estimated value".

Without access to the algorithm used by the computer models which churn out the quotes, it is hard to say how the value skews the quote given.

I suppose you could test it by seeking quotes from say 5 different comparison sites for exactly the same car/driver details and then do the same exercise say 5 or 10 times with valuations stepped up by £1000.

That should soon show up any loading/discount for high/low valuations.

Then to find out how it affects a claim, go and write-off your car and see how it affects the final settlement offered. You then need to repeat the exercise with another say 1000 cars before you start to publish any meaningful stats.

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Tue 10 Mar 2009 10:54
Why is 'purchase price' a factor with insurance? - Cliff Pope
Remembering that as you yourself clock up more quotes and write-offs, you will be altering the risk factors for the very criteria you are investigating. Heisenburg and all that.
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Tue 10 Mar 2009 11:11
Why is 'purchase price' a factor with insurance? - jbif
Remembering that as you yourself clock up more quotes and write-offs, .. >>


Will that affect the test to see how the write-off values compare against the 1000 different values you input in the form?

Edited by jbif on 10/03/2009 at 11:11

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Tue 10 Mar 2009 11:45
Why is 'purchase price' a factor with insurance? - valmiki
claim what's the point of asking for the purchase price?



So the insurance quote looks cheaper compared against it!
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Tue 10 Mar 2009 11:57
Why is 'purchase price' a factor with insurance? - Optimist
Like most other people here I've only ever been asked about worth, or value or some-such.

If you have a brand new car to insure you'll want to use the purchase price, unless you think you've done a stunning deal, in which case you may want to use a higher figure for what the car is worth.

I seem to recall that HJ says if you write a car off (or the insurance company does for you), you're entitled to be put back where you were before the accident: that's what insurance is for.

I'd be surprised if the cost of the insured vehicle were a really important variable in the premium calculation. Most of us drive around in cars costing less than £20k, so the driver and his risk profile is much more important because isn't that where the important variables are?

Where purchase price would come in is if you buy "back to invoice" gap insurance where the policy will pay the difference between your payment out and what your insurance company is prepared to pay you.
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Tue 10 Mar 2009 14:37
Why is 'purchase price' a factor with insurance? - Bill Payer
Liverpool Victoria's quote system has ranges for the value, and the lowest is £0 to £20K.
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Tue 10 Mar 2009 15:51
Why is 'purchase price' a factor with insurance? - Mapmaker
>Most of us drive around in cars costing less than £20k, so the driver and his risk >profile is much more important because isn't that where the important variables are?

I guess that most insurance payouts are for bent metal, not for damage to the driver. Hence an approx value for the car is the crucial thing.

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Wed 11 Mar 2009 09:10
Why is 'purchase price' a factor with insurance? - Kiwi Gary
For me, and interesting difference of approach by Insurance Companies. A fully-comprehensive cover here seems to be automatically for Market Value, regardless of price paid, and my annual renewal premium demand states the Company's idea of market value. No point in quibbling, because I find prices asked in the paper and on the yards are within a very few percent [ both ways ] of the Insurer's number. There is nothing to stop me nominating a lesser sum for the reduced premium and carrying some of the risk myself.
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Wed 11 Mar 2009 10:27
Why is 'purchase price' a factor with insurance? - Cliff Pope
That's interesting. The company allows you to deliberately under-insure?

Isn't that a bit like only insuring half your house contents, but then claiming that by an amazing coincidence, those were the only items the burglar took?
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Wed 11 Mar 2009 10:34
Why is 'purchase price' a factor with insurance? - Optimist
Under-insure? Isn't he just carrying a substantial excess?



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Wed 11 Mar 2009 12:44
Why is 'purchase price' a factor with insurance? - Cliff Pope
Under-insure? Isn't he just carrying a substantial excess?


That would depend. If he insured his car for say half its real value, and then incurred damage equal to the insured sum, would they pay 100% of the claim or 50%?
In my house contents example the company would say he was under-insured to the extent of 50% and only pay half the claim.
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Wed 11 Mar 2009 12:54
Why is 'purchase price' a factor with insurance? - jbif
... In my house contents example the company would say he was under-insured to the extent of 50% and only pay half the claim. ... >>


Is that not just what Kiwi alluded about the car insurance available in Kiwiland?
>> >> >>

Why your multiple blank lines of >> ?

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Thu 12 Mar 2009 08:08
Why is 'purchase price' a factor with insurance? - Kiwi Gary
You can claim only up to the value that you nominate. I guess, in effect, you have taken a voluntary excess of 50% in the example above.
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