The Planner's Perspective: Insurance for the Car Lover
By Paul Morrone CFP®, CPA/PFS, MSA
Those that have appreciation for collectible, performance or specialized automobiles have unique considerations when insuring these assets. Even the everyday driver of a high-end car may benefit from a review of their existing coverage to determine what type of parts will be used in the event the car needs to be repaired due to an accident. Will the insurance company pay for original equipment manufacturer (OEM) parts, or do they require the use of aftermarket or second-hand parts when available at a lower cost? Whether it’s a BMW, a Porsche or a Bentley, there is no substitute for OEM parts as the fit and finish of these items is exactly as it would have been from the factory. It’s no secret that it’s never good to have an accident on your car’s record, but having the car repaired with OEM parts may help preserve resale value in the future.
Collectible or classic cars may warrant a special type of policy where the insurance company will state an ‘agreed upon value’ for the insured vehicle in the event of a loss. This helps to protect the owner realizing what could be a much lower ‘book value’ for the car and can mean a substantial difference in reimbursement in the event you receive a payment for a claim. Because the market for classic cars is so dynamic (Porsche 993 owners can relate), we recommend reviewing the agreed value for your vehicle on a periodic basis and revise it if allowable under the policy terms.
Many car owners often opt to modify their cars significantly from stock specification. While some of these changes may be cosmetic or inexpensive, some modifications can cost tens of thousands of dollars. We recommend documenting any material modifications to your vehicle and notifying your insurance company in writing when they occur. Depending upon the type of policy you currently have, you may need to update your coverage entirely or purchase an agreed upon value policy to obtain adequate protection.
If you’re using your car on the track, be aware that most traditional insurance policies will not cover damage or losses that occur on a closed course. Depending upon the value of your vehicle and coverage available in the area, you may be able to purchase single-day track policies to protect your vehicle in the event of an accident when driving off public roads. Be aware that these policies also may come with some heavy restrictions and may only cover damage to your vehicle or others on the track and may not include liability coverage if a judgement is filed against you. They may also have a high deductible, leaving you to shoulder most of the financial burden. The main takeaway – drive safe!