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Aging Car, Higher Rates?

July 30, 2009

Chris Garlasco, Owner & Managing Partner - Founders Insurance Group

Chris Garlasco, Owner & Managing Partner - Founders Insurance Group

“The book value of my car continues to decrease with age, why aren’t my auto insurance rates heading downward as a result?”

 

This common misunderstanding often fuels client frustration with auto insurance companies, especially since on the surface that it would be a reasonable assumption. So let’s take a moment to discuss why this is often not an accurate assumption.

Your auto policy is broken down into several parts. Each part has its own price component. In laymen’s terms, one part protects you against a liability suit, whether that is for injury that you have caused to another person(s) or damage to their property. There is also a component to protect you against being injured by an individual without insurance or without enough insurance. Then of course there is coverage for the value of your car. That is broken down into collision or comprehensive coverage. If you have assets to protect, and even if you don’t, a conscientious agent will recommend at least $300,000 or higher of liability and uninsured motorist coverage.

As you might imagine, the bulk of your premium goes to cover the liability and uninsured motorist portion of your policy. In this example, the insurance company is placing $300,000 on the line in both the areas of liability and uninsured motorist. Even though your car may have gone down in value from let’s say $20,000 to $10,000, the company still has the vast majority of exposure in the event of a loss. You can
seriously injure another person with an older vehicle in the same fashion as you can with a newer
vehicle. If you take a close look at the comprehensive and collision coverage portion of your policy, that premium, assuming there hasn’t been an overall rate increase, has most likely gone down. In fact, it may be helping to offset an increase in the liability and uninsured portion of the policy. The car may be getting older, but the cost to defend you and cover injuries and suffering in the event of a liability claim has likely continued to rise.

Remember, the cost of the insurance is a reflection of the cost of the exposure that you are being protected against. The book value of your car often only makes up a fraction of your coverage.

Thank you for taking valuable time out of your day with me!

Chris Garlasco

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3 Comments leave one →
  1. Ashley Whitney permalink
    July 30, 2009 10:09 am

    I’ve found that the physical damage premiums don’t necessarily go down with the age of the vehicle (at least in Michigan). The cost to repair the vehicle tends to go up (parts & labor etc). Most auto claims are not total losses, so even though the overall value of the vehicle decreases, and the resulting payout for a total loss decreases, the cost to repair it for a partial claim hasn’t.

    This is good information – I’ve focused on the physical damage aspect when discussing this with insureds.

  2. Chris G. permalink
    August 2, 2009 10:08 pm

    Thanks for your thoughts!

    Chris

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