Should your full coverage auto insurance costs depreciate every
year as your car does?
Your belief that as your vehicle depreciates in value the cost to
carry physical damage coverages of comprehensive and collision
by some) would decrease as well makes sense in theory, but it
doesn't necessarily hold true in reality.
It's correct that as a vehicle depreciates, the
actual cash value
that an auto insurance company would pay out if the car were
totaled would go down. But a two-year-old Honda Accord is
probably just as expensive to repair to its pre-accident conditions
as a brand-new one would be.
The value of a vehicle is only one factor car insurance
providers use to calculate your full coverage premium.
There are other key issues that could balance out any decrease
in premium that you'd receive from having the value of your car
depreciate, and thus your rates may remain the same or even be
pushed higher. (See "
Insure your car from showroom to junkyard
For instance, many car insurance companies offer a
new car discount
, typically up to 10 percent on collision, for an insured vehicle
that is three years old or newer. Once your vehicle is four years
old, your rates may drop by 5 percent because the value is less,
but now that your 10 percent discount is gone you won't see a lower
Some items that could push your collision and comprehensive
coverages higher instead of lower (or keep them the same)
- If your year and model vehicle is a top stolen vehicle in
- The cost of repairs and parts is high. Parts may be
hard to find for your particular model vehicle, in which case
your auto insurance provider would charge more to cover these
high costs that it could potentially incur.
- If collision claims frequency and payments for your vehicle
The Highway Loss Data Institute (HLDI) allows you, and auto
insurers, to see which cars are better or worse than others in the
same class of vehicle, regarding the frequency of claims and
average payment per claim type.
For example, if collision claims frequency and payments for your
seven-year-old vehicle are higher than those of a five-year-old
vehicle of the same model, your full coverage costs could be
Keep in mind too that if you change anything else on your car
insurance policy, it will also impact your rates. Risk
factors typically include your age, your location, driving record,
occupation and miles driven per year. Changing any of these
factors, or adding more drivers to your policy, will change your
overall car insurance rates.
Auto insurance companies' rating systems vary widely for both
the liability and physical damage portions of a policy.
Comparison shopping will allow you to see which auto company will
give the best rates for your specific set of rating factors,
including the particular vehicle you own.
At some point, it may be wise to ditch comprehensive and
collision on your older vehicle -- if you own it outright.
(See "Is it time to drop comp and collision" for guidelines on when
to remove the coverages) When you make that decision, be sure
to shop around again for the cheapest car insurance rates for your