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Question from Judy: I bought a new car back in 2021 and it’s been insured by the same company all this time.
I know my car has depreciated some over the years but my insurance premiums are higher now than they were when the car was brand new.
That makes no sense to me.
It seems like the premiums should decrease along with the value of the car since the insurance company would have to pay out less as the car gets older.
Why didn’t my premium go down along with the value of the car?
Rick’s answer: That’s a great question, Judy. And truth be told, I didn’t know the answer so did a bit of research to find out.
As it turns out, there are several reasons why auto insurance premiums don’t go down as the covered vehicle depreciates. Here are three of the most important ones:
1 – For most drivers the payout amount of a covered vehicle is a relatively small portion of the total amount the insurance company might have to pay out if that vehicle is involved in an accident.
For example, the amount the company might have to pay out for medical bills and the damage caused to other people’s property could easily be many times what they’d have to pay you for the value of your totaled car.
And as you probably know, the already sky-high costs of medical care are constantly on the rise.
2 – Statistically, the vast majority of damaged vehicles are repaired, not totaled. And the costs involved with repairing older vehicles are just as high as repairing new ones (and in some cases even higher).
3 – As cars age, important parts begin to deteriorate, which causes the car to become less safe and reliable.
And that of course increases the risk that the vehicle could be involved in an accident (and the risk that the insurance company might have to pay out a claim) in the first place.
There you have it. Those are the reasons insurance companies use to justify charging the same (or even higher) rates as a car depreciates over time.
And now, having said all of the above, I’ll say this…
There’s a very simple way to (probably) lower your insurance premium by a hefty amount: Switch insurance companies!
To finish up, here’s a short video offering 11 tips (plus several bonus tips) for getting the lowest insurance rates possible. Check it out!
Note: As always, you can watch the video at full screen by clicking the “square” icon in the lower-right corner of the video after it begins playing.
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