My Car is Getting Older & Worth Less.  Why Isn't My Insurance Premiums Lower?

My Car is Getting Older & Worth Less. Why Isn't My Insurance Premiums Lower?

October 25, 2020
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This by far is the most frequently asked question I get from customers.  Imagine this scenario; In 2017 you buy a Mercedes E Class for about $60,000.  Fast forward 3 years and the car is worth about $42,000 today.  It costs less to replace, so why isn't my insurance rates reflecting this?

In order to understand this, you need to know a little bit about what goes into the making of an insurance premium.  There are actually hundreds of factors that go into the makeup of an insurance premium, but I'm going to focus on only 3:

  • Liability:  A large part of your premium is the liability portion.  That is what the insurance company pays to the other party if you are involved in an accident that is your fault.  The liability premium is basically the same if your car is a brand new Mercedes or a 20 year old Ford Explorer.  

  • Labor Costs:  Regardless if your car is brand new or several years old, the labor costs to repair your car are the same.

  • Cost for Parts:  Cost for parts are at Replacement Cost.  Unless your car is considered a "Total Wreck", the costs for parts are settled at a replacement cost basis and there is no deduction for depreciation. 

The only time you could make the argument that the rates should be lower is if the vehicle is totaled.  However, only a small percentage of all accidents result in a total wreck and statistically speaking, it has very little bearing on the insurance premium

So there you have it.  Is it fair?  Maybe not but that's the facts the insurance companies rely on to charge a premium.  

I'd love to hear your thoughts.  Want to learn more, check out our website at www.brookswaterburn.com