Reprinted from Vette Magazine
It’s All About What an Agent Fails to Tell You, or Doesn’t Understand
By Holly Bromberg
When collectible cars you own are only driven occasionally for pleasure drives, club events, special excursions, maybe 1,000 or certainly under 5,000 miles a year, non-business purposes, etc., it is time to enroll them in a Collector Car insurance program. If you are insuring these cars under a standard insurance policy, you should expect problems with claims. Be prepared to deal with a claims adjuster who doesn’t understand why using a repair shop of your choice or using original equipment (OEM) parts can be extremely important. Standard auto insurance policies do not guarantee a value for your car at the time of loss. If you wouldn’t take your favorite automobile to any shop for service, the same is true for its insurance.
There are a few specialty insurance brokers who provide automobile insurance policies designed to cover collectible automobiles for pleasure driving only. If you qualify, their premiums are usually a fraction of the cost of a standard insurance policy. Insurance company underwriting guidelines may include driving usage, special care for the car (such as how it is garaged), good driving records, and little or no youthful drivers. A few brokers market polices nationwide, often including coverage for spare parts, towing, etc.
First and foremost, your policy should be underwritten by an insurance company admitted to do business by your state insurance department. The insurance company should be “A” rated by Best’s Key Rating Guide. The auto policy should be written using policy forms approved by your state insurance department.
The number one source of confusion is physical damage policy coverage. If you can obtain a policy using the correct policy form, you’ll hit a home run. Insurance companies will use one of three different policy forms. They are generally known as Actual Cash Value, Stated Value or Stated Amount, and Agreed Value or Agreed Amount. Each of these three forms is different, misunderstood, and frequently misrepresented by insurance agents.
Most collectible automobiles have stable values and slowly appreciate over time. Because the values are stable, an Agreed Value insurance policy should be obtained to protect your collectible automobiles. Under an Agreed Value policy, if your car is stolen or totaled, you will receive the Agreed Value listed in writing on your auto policy—95 percent of all standard insurance companies do not offer an Agreed Value policy.
ACTUAL CASH VALUE (ACV)
This form of coverage is typically used with a standard auto policy. The insurance company claims adjuster ultimately decides what your collector car is worth at the time of the loss. While you may have some input, if you do not agree with the claims adjuster, the insurance company claims adjuster decides the final claims settlement. If you do not agree with the claims settlement, you may have no alternative but to seek legal action, or if specified in the policy, arbitration.
STATED AMOUNT OR STATED VALUE
This policy form is frequently and easily misunderstood and is often used on collector car policies. Most insurance agents typically represent it as being the same as Agreed Value—but it is not! The Stated Amount form states the insurance company will pay the lessor of
- The Stated Amount, or
- The cost to repair the covered auto not to exceed the Stated Amount, or
- Actual Cash Value
The Stated Amount helps determine the premium cost. It does not guarantee you a settlement amount at the time of loss. The Actual Cash Value language allows the claims adjuster to settle your loss for an amount less than the Stated Amount. Sadly, most insurance agents are unaware of this detail. Most agents, unaware of the actual policy language, will insist if your collector car is stolen or totaled, you will receive the stated value—wrong!
AGREED VALUE OR AGREED AMOUNT
This is the only policy form guaranteeing you in writing what amount you will receive if your Vette is stolen or totaled during the policy period. Note there is no Actual Cash Value clause in the form. The Agreed Value form states the insurance company will pay you the lessor of:
- The Agreed Value, or
- The cost to repair or replace the covered auto not to exceed the Agreed Value.
The Agreed Value should be reviewed carefully with your agent before the policy is issued. Your agent and you must agree together upon the Agreed Value before the policy is issued. The Agreed Value should represent the true market value of the car at the time the policy is written. If the market value changes during the policy period, the Agreed Value can be changed by endorsement. Before policy renewal each year, the Agreed Value should be changed if necessary to reflect current market values.
Once you find a program or two offering Agreed Value for physical damage coverage, compare the extra coverages. In addition to the car’s Agreed Value, a few programs allow you to schedule special items such as original Rudge wheels, Nardi steering wheels, original matching luggage, special stereo equipment, etc. Many programs only allow you to drive 2,500 miles annually, but some offer different mileage plans up to 5,000 miles a year, as well as different physical damage deductibles. Some have warranties and restrictions allowing you to drive the car only to special events and car club events. Read the application carefully. Ask your agent about policy warranties and restrictions before you apply. Each program is a little different. Find one suitable for your driving needs.
The most common types of claims are not from total wrecks or theft. Most claims require you to take your the car to a shop for repairs. Will your insurance company allow you to have your car repaired by a qualified repair shop of your choice that charges more money than a less qualified shop? They should. Will your insurance company pay more for the repair shop to use OEM parts if available? Many large insurance companies have been sued and lost enormous law suits because they failed to repair damaged cars with original parts. If available, make sure your car is repaired using OEM parts. Insurance company claims practices vary widely. Having an Agreed Value policy, an agent with claims authority, and an insurance company that understands the insurance risk is of paramount importance. If your favorite car is stolen or totaled, you will know in advance how much you will receive.
OBTAINING A COLLECTOR CAR POLICY
Many collector car programs will require you to have at least one other car in your name for everyday use. Be sure the coverage limits for both liability and uninsured/underinsured motorists’ coverages provided by the auto policy covering your everyday car(s) match the same coverage limits provided by your Collector Car policy. The medical payments limits may vary depending on what the insurance company’s filings offer. A few unethical insurance agents will tell you not to obtain a separate collector car policy because their auto policy or personal umbrella/ excess policy will not allow it. This is rarely true. There are two key provisions these policies may require of a collector car policy:
- The limits of liability coverage provided by the Collector Car policy must be the same or higher than those provided by the everyday auto policy.
- The insurance company issuing the policy must be “A” rated.
I have yet to see an auto or umbrella/excess policy requiring anyone to insure all of their automobiles with one insurance company. If necessary, ask the agent to show you where their policy states you cannot secure a separate auto insurance policy for your Collector Car. Don’t hold your breath.
Obtain an Agreed Value Collector Car policy through a reputable insurance agent or broker who understands the collectible automobile business. You won’t lose any sleep over how a future claim will get settled. Your agent should have a solid relationship with the insurance company underwriting the Collector Car policies. A few agents even have claims authority to help the insurance company settle claims quickly to your complete satisfaction. Better agents are actively involved in the collectible car hobby. Many participate in various car clubs’ activities. Does your agent have any long-term commitments to any car clubs or car manufacturers?
Why settle for less? If your current insurance agent cannot offer you a Collector Car insurance policy with an Agreed Value form, find a new agent. Read your policy carefully and shop around. Spend time comparing all aspects of an insurance policy—not just its price—and make sure the Collector Car policy suits your driving needs. [Ed. - Holly Bromberg is the President of Leland-West Insurance Brokers.]