He first suggests that all insurance companies are only after their own interests and the interests of their shareholders. He is correct that these companies are companies. They are out to make a profit delivering a service. What he does not seem to realize is that any insurance company in North America that has the word “mutual” in their name is actually owned by their policy holders. Think of it like a co-op store.
What insurance companies do is carry risk for the policy holders. To do this properly, they must understand what the risk is. Brokers and agents (they are two different things) are often used to people being price sensitive. They will often quote in such a way to give people the lowest rates they can.
While this is good for people’s budget, it can leave them at risk and cause great problems when it is time to collect.
It is always in your best interest to tell your insurance person exactly what you have and its significance. Here is an example:
You go out and finally buy a 1987 Buick GNX with 95 miles on it. It does exist out there: http://www.johnscotti.com/en/used/1987-buick-gnx-284-of-547/2153439/
So cool!
Pic borrowed from the ad mentioned above
For those of you who don’t know, the GNX was a high performance version of the already high performance Buick Grand National.
This is the quieter version
Pic borrowed from: http://my.opera.com/carpictures/blog/?tag=wallpaper&startidx=30&nodaylimit=1
So you have spent all your birthday money, and then some, to acquire your new toy. Now you want to drive it, so you have to get it licensed and insured. To save some money you decide to see if you can get away with insuring it as a 1987 Buick Regal. Technically it is the truth and who is it going to hurt?
Pretty much the same thing, right?
Pic borrowed from: http://www.cargurus.com/Cars/1987-Buick-Regal-2-Door-Coupe-Pictures-t29578_pi8026200
Two months later, you are in the mall parking lot. A mini-van full of screaming kids, piloted by a haggard dad who hasn’t has his Starbucks yet, doesn’t notice that you hit the brakes. It comes ploughing in to you. The bumper is shot, as is the trunk deck and both rear quarter panels. Now your nightmare begins.
The insurance adjuster looks at the damage, which is about $4,000. Then they look around on the open market and find that you can buy a 1987 Buick Regal coupe for $3,000. So, the value of the damage exceeds the value of the car that they insured and they offer you $3,000. It is about this time that you start screaming blue murder. Explaining at the top of your lungs that it is a limited edition work of art and they are screwing you.
So the moral of my little parable, tell your insurance company exactly what you have. They will then be able to assess the risk, charge you appropriately and be there for you should the unthinkable happen.
The next point that David Grainger makes is that the insurance may not cover the entire costs involved in restoring a car. He is right, but again you have to understand what insurance is and what it does.
Insurance is there to take away the financial risk of losing an item, such as your car. They determine this value based on the open market. On newer vehicles this is fairly easy. We know the purchase price off the new car lot and there are lots of used ones available. They are all going to have similar mileage and very few people customize brand new cars to any great degree. If this kind of a car goes missing, you can go to the open market and find something similar without much trouble.
On classic cars things are very different. Here is another example:
You buy a 1968 AMX for $6,000.
Just a little elbow grease and it’ll be fine (actual 1968 AMX available for $6K)
Pic borrowed from: http://www.amx-perience.com/classifieds/showproduct.php?product=1538&sort=1&cat=2&page=1
It is in ok shape but you want it to be perfect. You roll it in to your garage and spend all your weekends for a couple of years making it right. You source all the correct parts and spend whatever it takes to ensure that the car is in showroom condition. A year after you have finished, some kids take it for a joyride. Because they have never driven anything with that sort of power, it doesn’t take them long to plant it into a wall.
For sake of argument, let’s say that you had done a complete, frame off, down to the nuts and bolts. It cost you $40,000. You also put in 1000 hours of work. So how does this all play in to the value you are going to get from the insurance company? Sorry to tell ya folks, it doesn’t. On the open market you can buy a similar car for $29,500. So you are going to get $29,500.
Very pretty (another 1968 AMX, available for $29,500)
Pic borrowed from: http://www.amx-perience.com/classifieds/showproduct.php?product=1553&sort=1&cat=2&page=1
Why? Because the vale is determined by what the open market values it at. The open market gets to decide because it is impartial. You are always going to value your own stuff more than anybody else. You obviously like it, that is why you have it. The insurance company has to make sure that it doesn’t over pay or it won’t be in business very long.
Why is it not just based on what you put in to the car? It is because there are a lot of ways that you can put money in to a car that does not add value. When I was in car sales I met a guy who had put $20,000 worth of modifications in to his Eagle Talon. He had customized it so much that it actually ended up devaluing the car. It was too personalized for anybody else to drive.
Another way to think about it is this: What would you pay for a 1980 Chevy Chevette? Even if it was in pristine condition, unless it has some sort of emotional significance for you, I doubt you would want to pay more than $5,000. Even this number may be a little high. Now think about what somebody would have to do to make it worth $10,000. Did you come up with anything better than loading the trunk with gold bars? Nope, neither did I.
This was the best picture of a Chevette I could find
Pic borrowed from: http://allworldcars.com/wordpress/?p=2208
Classic cars are harder to value than new cars because parts are harder to find and no two cars are ever treated the same. Some cars are driven by people who clean out the air vents with cotton swabs after every trip to the supermarket. Other people drive their cars like they stole them and treat the interior like a frat house.
The take away here is this: If you have a car that you waited years to buy and then you have put so much effort in to restoring, why would you not take as much care in selecting your insurance? Find an insurance professional that you trust. Explain to them exactly what you want to insure and how you are planning to use it (IE: daily driver or only out on sunny weekends). Ask them to describe their process in handling a claim. Get the answers in writing and put it in your car file. You do have a file for all your car related paperwork don’t you?
If you play straight and understand what your insurance company will do in the event of a claim, you will have a much better insurance experience.
