A client’s son called me a few weeks ago. He was buying a car and wanted to discuss what the car insurance would cost for it. The car is an early 2000 Subaru WRX that had been nicely customized with a new suspension system, engine modifications, and wheels. The car insurance issue this raised was how to address the value of a car that’s 10 to 15 years old and had $15,000 worth of customization done in the last couple of years.
Most car insurance policies operate on an actual cash value, or depreciated basis. This means before a property damage claim is paid, the car will be depreciated based on its age, and every single ding, scratch carpet stain, etc. Each of these items is subtracted from the current value of the vehicle. The retail value of stock WRX of this age runs from $2,600 to $3,500 with the wholesale value tracking lower.
If my client’s son were buying a stock WRX, with no customization, I would have recommended covering it on a liability only basis based on its age. Due to the amount of customization, I needed to confirm this could be included to his coverage. There are two ways this can be done, depending on the carrier. The customization can be added to the vehicle’s coverage, or the vehicle can written on a stated value basis.
Some carriers will want the policy to be written based on the vehicle’s age, but then add the value of any customization as optional coverage. This provides a little savings over a stated value policy, but there is a downside worth considering. If the vehicle is in an accident, then the claim is still paid on a depreciated basis with the value of the customization (usually depreciated) factored in. This approach leaves the owner exposed to not receiving a proper value on a customized vehicle.
When taking the stated value approach, I’m able to write a policy for the full customized value of the vehicle. In this case, the value is over $20,000 and that’s what it’s insured for. This method costs a little bit more, but provides the best coverage for the owner if it’s involved in an accident and determined to be a total loss.
If you’ve customized your car, truck, or SUV, it’s important to review how it’s been customized, as well as its value with your car insurance agent. Customization can include a new suspension or lifts, engine modifications, interior upgrades, skid plates, roll bars, brush guards, spoilers, wheels, paint job, and even high end stereo systems designed to rumble neighbors’ houses. You may pay a little more for your car insurance, but you’ll be properly covered. The downside of not adding it is potentially having an insurance company ignore it in a claim, and that’s a losing proposition.
I was able to add my client’s son’s car to the family policy and cover it on a stated value basis for the car’s full value. The son was thrilled with the rate, the coverage, and is enjoying his new ride! Share your comments, questions, and what you’ve done to customize a vehicle with me on my Google +, Facebook, and LinkedIn pages. I’d love to hear from you!
