A well-known fact about automobiles is that they depreciate in value as time passes. The obvious exception to this rule is the classic, or vintage, automobile. These collector items actually appreciate in value and are often prized because of their age.
A classic car is more than a possession, it is a passion. It often represents a painstaking restoration process, with countless hours of sweat and labor put into it. All of our cars are important to us – but the classic car represents something more to its owner. It is more than simply a vehicle, it is a work of art, it is a piece of history.
So how does a classic car owner go about protecting his or her prized property? Due to the very nature of classic vehicles, the normal rules of auto insurance don’t apply. The blue book of a car from the 1960’s would suggest that is only worth a few hundred dollars. If that car is fully restored, it is actually worth much, much more. What can a classic car owner do to ensure that in the event of a loss, they would receive what their vintage automobile is actually worth?
To figure this out, we will examine three methods in which auto insurance companies determine the value of your vehicle.
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Actual Cash Value
This is how car insurance normally works. When you file a claim with the insurance company, they issue you a check for what the vehicle is worth at the time. This is known as the actual cash value (ACV). If you bought a Jeep for $15,000 five years ago, its ACV now may only be $9,000 – and that is what the insurance company will pay.
ACV represents a problem for classic car owners. Since their vehicles appreciate in value, the conventional valuation process is not applicable. How does a classic car owner demonstrate the real ACV to their auto insurance company?
Hire An Appraiser
A professional appraiser can give written documentation to the auto insurance company of the true ACV of the vintage vehicle. The advantage of having this on record is it one less thing you will have to worry about in case the vehicle is totaled or stolen. It is official documentation and an accurate reflection of the vehicle’s worth at the time of the appraisal.
Take Photos
Snap interior and exterior photos of the classic car. Submit these photos to the auto insurance company along with the appraisal. This way you will have visual evidence that the car has been restored and is in good condition.
The disadvantage here is that the ACV of the car may not take into account how much the classic car is worth at the time of the loss. There is something known as current market value, and the difference between this and the ACV could be thousands of dollars. Also, many auto insurance companies won’t insure for physical damage of a classic car that has reached a certain age (normally 20 years). It is possible then that many standard auto insurance companies will not cover the ACV of a classic car.
Stated Value Coverage
This is the option that many auto insurance companies present instead of ACV for classic cars. Essentially, stated value is the amount the auto insurance company agrees to pay up to in the event of a loss. Note that insurance company will not pay more than the stated value of the vehicle, even if the car is worth more.
However, auto insurance companies will not necessarily pay the stated value either. They will issue a check for the market value of the vehicle. For example, lets say the stated value of a ’67 Chevy is $30,000. But the market value drops to $20,000. Guess how much the auto insurance company is willing to pay? That’s right, the insurance company will pay for the lesser of the two amounts. However, if the market value is more than the stated value, the auto insurance company only will pay the stated value. The stated value is the limit, but insurance companies can (and do) pay less than that.
Even though an auto insurance company may not pay the stated value if the classic car is totaled, the classic car owner has to pay a premium based on the stated value of the car. For the example above, the ’67 Chevy owner pays a premium based upon $30,000, and the market value only comes into play if a claim is submitted.
Considering these inequalities, stated value coverage is not very popular with antique automobile owners. But if ACV is not available, stated value coverage is expensive and unfair, what’s a classic car owner to do?
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Agreed Value Coverage
This is the most attractive option for classic car owners. It is an agreement between you and the auto insurance company that states the value of the car. Often all the owner needs to do is submit to the insurance company are photos, no appraisal is necessary. Unlike Stated Value, Agreed Value is what the insurance company will pay you if a claim is submitted.
The great thing about Agreed Value Coverage is that is usually cheaper than a Stated Value policy. For instance, the Hagerty Classic Insurance Company boasts that their policies cost on average 37% less than a standard policy. A ’67 Chevy worth $30,000 is quoted at a rate of $273 per year.
However, there are restrictions. Classic car insurance companies (the ones who offer Agreed Value Coverage) are much more strict about whom they choose to underwrite. An applicant is not allowed to have more than two minor traffic violations in the last two years, and can’t have any major violations (such as reckless driving or a DUI) in the last five, sometimes ten, years. Also, classic vehicles are subject to mileage limits and can’t be “daily use” vehicles. The household that seeks to insure the vintage automobile must have at least one other vehicle that is used for daily commutes. In addition to this, there are limits as to what car can be considered a “classic.” Either the car must be of a certain age (like 15 –20 years) or has to be considered rare. Car models that were only produced in limited quantities are an example of this. And finally, the car must be stored in a safe, secure garage.
Classic car insurance may have all sorts of limitations, but it also offers great benefits that can’t be found with your average auto insurance company. Features like restoration coverage, spare part coverage, and overseas touring coverage are special forms of car insurance offered by classic car insurance companies.
Agreed Value Coverage tends to be the most popular choice among classic car owners, but you must decide what coverage best suits your needs. Evaluate your resources and qualifications and see what your coverage best fits you.
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