Should the age or value of your car make any difference to the cost of your auto insurance? For some insurance coverages, the answer is no.
Take liability coverages, for instance. These are the limits that protect you when you injure someone or someone else’s property with your car and are being held liable for the damages. It doesn’t matter whether you run over someone with an old clunker or a new SUV. And you will need liability insurance to cover your legal costs and pay the damages if you are found responsible.
Medical coverages? Uninsured or underinsured motorist coverage? Again, it does not matter if you or your passengers are injured in a 1979 Dodge or a 2002 Mercedes. These coverages are still necessary.
The only coverages you should consider altering simply due to the age or value of your vehicle are the ones that will actually pay for damages or loss of your car. For example, if your car is stolen and never recovered, your insurance carrier owes you the actual value of your car less any deductible. If your car at the time of the theft is worth $11,500 and you have a $250 deductible, your insurance should pay $11,250. If you have an old car worth $1,150 with the same $250 deductible, you are due only $900. Quite a difference! And the math works the same for a collision or any other type of covered damage.
Naturally the price you pay for your physical damage coverages goes down along with the value of your car. And as long as you still are making car payments, the bank will require you to keep these coverages in effect. Once you pay off the car loan, consider if the amount you may receive for a total loss (minus your deductible) is worth the premium.
One rule of thumb is to consider the car’s remaining useful life. Multiply the number of years by the annual premium. Compare that to how much you will receive for a total loss. How good a deal do you think it would be to keep paying that part of the premium? This is totally subjective. Consider your peace of mind. Even a car that some consider worthless is worth insuring if the loss would cause you to lose your sole method of transportation. Even if your insurance didn’t pay much, if it is enough to get you into another car that meets your needs, then that is a price that may be worth paying.
How do you know how much you will get for a total loss? Generally insurance companies will look at common references for valuing vehicles, such as the “blue book” or average price a similar vehicle is selling for in your area. Contact me, Jon Jepsen at SentryWest Insurance of Salt Lake City, Utah (a Trusted Choice® insurance professional) about what guidelines your particular insurance carrier will use and plan accordingly.
Physical damage to your old car is the one place in your personal auto insurance it may actually make sense to minimize or eliminate coverages. You not only face getting less money from a settlement, but if you are like many, a scratched fender may not seem nearly as important to fix when the rest of the car is being held together with duct tape.
Jonny Jepsen, CIC