Agreed Value vs Market Value Insurance: Which to Choose in Sri Lanka?

What is the difference between agreed value and market value insurance?

Market value cover pays out what your vehicle is actually worth on the day you make a claim, which keeps falling as the car gets older. Agreed value cover fixes a payout figure that you and the insurer write into the policy upfront, so a total loss or theft claim pays that fixed amount instead of a depreciated market figure. Most standard comprehensive motor policies sold in Sri Lanka work on a market value basis unless you specifically ask for agreed value, or your insurer markets it as a named add-on.

Key facts

• Market value policies settle total-loss and theft claims based on the vehicle's value at the time of the claim, not what you paid for it.
• Agreed value policies fix the payout figure at the start (or at each renewal), so it does not move with the market during the policy year.
• Insuring your vehicle below its real market value is under-insurance — your payout can be reduced even on a valid claim.
• Insuring above market value does not get you a bigger payout; compensation is capped at market value under a standard policy.
• Depreciation is applied separately on repair claims (not just total loss), with fixed rates often used for parts like tyres, battery, rubber and plastic trim.
• Your sum insured is reviewed and usually needs updating at every renewal, not left as it was when you first bought the policy.
• As of November 2026, check your own policy document or ask your insurer directly for exact depreciation percentages and whether agreed value is offered, since these details vary by insurer and can change — this article does not state exact rates for that reason.
• Comprehensive insurance is the type that covers your own vehicle for fire, theft and accident damage; third-party-only policies do not have a "value" question at all because they don't pay out for your car.

How does market value insurance actually work in Sri Lanka?

Market value insurance means your insurer promises to pay what a similar vehicle — same make, model, year and condition — is worth in the open market at the time you claim, not what you paid years ago. According to Sri Lanka's insurance regulator's consumer guidance on motor insurance, if you insure your vehicle below its real market value, your compensation on a total loss will be less than the vehicle's actual worth. If you insure above market value, you don't get more money — payment is still capped at the market value figure. This is why the "sum insured" field on your renewal notice matters: it should reflect what your car is worth now, not an old number carried forward from a previous year.

How does agreed value insurance work?

With agreed value cover, you and the insurer settle on a specific payout figure when you take out or renew the policy, and that figure is what gets paid if the vehicle is written off or stolen — regardless of what the market says it's worth on the actual claim date. This removes the uncertainty of a market assessment at the worst possible time (right after an accident or theft), but insurers price that certainty into the premium, and the agreed figure is usually revisited and adjusted down at each renewal to reflect the vehicle's age. Not every Sri Lankan insurer markets agreed value the same way, so ask specifically whether it's available for your vehicle and how often the agreed figure gets reviewed.

Why does this matter more for some vehicles than others?

It matters most for vehicles where the "obvious" market value is hard to pin down or likely to be disputed — newer imports, vehicles bought just before a tax or permit change, limited models, or cars with non-standard modifications. If you financed the vehicle through a lease, your leasing company will usually insist on comprehensive cover with a sum insured that keeps pace with the outstanding balance, since a payout that falls short of what you still owe leaves a shortfall you'd have to cover yourself — worth checking directly with your finance company, and see our guide on leasing if you're still comparing payment options before you buy. For an everyday mid-range sedan or hatchback, the gap between agreed and market value is usually smaller, so the standard market value policy is often good enough.

How is depreciation applied to a motor insurance claim?

Depreciation shows up in two separate places, and it catches people out because they only expect one. First, on a total loss or theft, market value cover pays a value that has already depreciated with the car's age — that's the whole basis of the payout. Second, on a repair claim for a damaged (not written-off) vehicle, insurers typically apply depreciation to specific parts being replaced — commonly items like tyres, battery, rubber and plastic components — while labour and glass are often treated differently. The exact percentages and which parts they apply to differ between insurers and change over time, so always ask your insurer for their current depreciation schedule, or check it in the policy document you were given, rather than assuming it matches what a friend's policy says.

Step-by-step: how to check which type of policy you currently have

1. Pull out your current policy schedule (the summary page, not the full policy wording) and look for the sum insured figure and any mention of "agreed value" or "market value."
2. If neither word appears, call your insurer and ask directly — don't assume; most standard comprehensive policies default to market value.
3. Compare the sum insured on your schedule against what similar vehicles are actually selling for right now, using Wahanaya's price check tool and recent listings on /vehicles.
4. If the sum insured is noticeably lower than current market prices, flag this before your next renewal — you may be under-insured today, even mid-policy.
5. Ask your insurer in writing (email is fine) exactly how depreciation is applied to repair claims versus total-loss claims on your specific policy.

Step-by-step: how to choose between the two at renewal

1. Get your renewal quote at least two to three weeks before the expiry date so you have time to compare options — not the day before your revenue licence or insurance lapses.
2. Ask your insurer for a quote under both market value and agreed value (if they offer it), with the same cover limits, so you can compare premiums fairly.
3. Check what the agreed value figure would actually be set at, and ask how it will be adjusted at future renewals.
4. Weigh the extra premium for agreed value against how much a market-value shortfall could realistically cost you if the car were written off tomorrow.
5. If you're unsure, ask in the Wahanaya forum — other owners of the same model can often tell you what settlement they actually received on a real claim, which is more useful than a theoretical comparison.

What should you ask your insurer before you sign?

Ask whether the policy is market value or agreed value by default, how and when the sum insured or agreed figure is reviewed, what depreciation rates apply to repair claims and on which parts, what your excess (deductible) is for own-damage versus third-party claims, and whether your no-claim bonus is protected if you make a claim. Get the answers in writing where possible, since verbal assurances from an agent are hard to rely on later if a claim is disputed. If you're buying a used vehicle and arranging insurance for the first time on it, read our guide on safety tips for other checks worth doing before you hand over money, and remember that whichever policy type you choose, the sum insured only works for you if it's kept realistic — check it every renewal, not just once.

Sources

• IRCSL - Motor Insurance consumer guide
• Sri Lanka Insurance - Motor Vehicle Insurance Policy Book 2023
• National Insurance Trust Fund - Motor Insurance Policy
• Fairfirst Insurance - Vehicle Insurance
• Ceylinco Insurance - Motor Insurance