Owning a vehicle is one of life’s biggest financial commitments, and its value plays a critical role in determining whether you find an affordable car insurance premium. But how exactly does the worth of your vehicle affect the cost you pay each month or year?
When you buy insurance, your provider calculates the premium based on several factors, including the cost of repairing or replacing your car if you’re involved in an accident. Understanding this relationship can help you make informed choices, whether you’re buying a new whip-around or just renewing your policy.
Below, we explain how the value of your car affects your premium.
Insurance group
Every vehicle falls into an insurance group, and these groups significantly impact the price you pay for coverage. Cars are classified into groups from 1 to 50, with group 1 vehicles generally being the cheapest to insure and group 50 the most expensive. Insurers consider factors like the vehicle’s performance, cost of repairs and likelihood of being stolen when assigning these groups.
For example, if you own a high-value sports car, it will likely fall into a higher group because of its speed, complexity and expensive parts. On the other hand, affordable hatchbacks with strong safety records tend to belong to lower groups, resulting in smaller premiums.
Before purchasing a car, check its group, as this can give you a clear idea of the long-term costs involved.
Market value
Insurers use your car’s current market value to calculate premiums, especially for comprehensive coverage. This figure reflects how much your vehicle is worth at the time of insuring it, based on factors like age, mileage and condition. A higher market value typically means higher premiums because insurers must cover a greater cost in the event of a total loss.
Take control by accurately reporting your vehicle’s details. Avoid overestimating its value, as you’ll end up paying more in premiums than necessary if you inflate the figure. You can use trusted online valuation tools to get a realistic estimate.
Depreciation
As your car ages, its value decreases due to wear and tear, reducing the cost of replacement or repair. Insurers adjust your premiums accordingly, often lowering them as the vehicle depreciates. However, this isn’t always a guarantee – older cars with rare parts or limited availability can attract higher premiums due to increased repair costs.
To take advantage of depreciation, consider revising your policy annually to reflect your car’s reduced value. If you drive an older vehicle, switching to third-party or third-party, fire and theft coverage may be a cost-effective option, provided your car’s worth doesn’t justify comprehensive cover.
Understanding how your vehicle’s value influences your premiums puts you in a stronger position to make smart decisions. By choosing the right car and policy for your needs, you can save money while staying protected.
