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What do rising car prices mean for car insurance?

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You’ve probably heard that used car prices have soared to new heights during the pandemic. What you may not know is that today’s overheated car market can also pose a problem to your auto insurance coverage in the event of a major accident.

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The latest consumer price index data released this month shows that used car prices rose by a staggering 45% between June and last year — nearly nine times the 5.4% increase in the cost of all goods and services. services, and a quarter of the 12% increase in auto insurance premiums over the same period.
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Experts attribute the spike to factors such as increased vehicle demand during COVID-19 and a shortage of new cars as manufacturers grapple with pandemic-induced manufacturing issues. Whatever the reasons, the numbers are clearly bad news for buyers, who could easily pay four figures more for a mid-priced ($20,000) used vehicle this year compared to 2020.

Fortunately, those “very high prices” aren’t currently being used to set (and drive up) insurance premiums. according to Mark Friedlander, director of corporate communications at the Insurance Information Institute. Brian O’Connell, Insurance Analyst at InsuranceQuotes.com, agrees and says that “ insurance prices are rising, but not necessarily because of higher used vehicle prices,”

The bad news, however, is that those high price tags are also not used when insurers calculate the offers they make to car owners when cars are declared a total loss. That creates a potentially problematic gap between what you receive in an insurance scheme if your car is “totaled” in an accident or other mishap and what it could cost to replace the car in today’s market.

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A claim offer cannot meet the replacement cost

When it comes to the vehicle value used to calculate your premium and any claims settlements, insurers don’t account for “temporary changes in the market,” such as the current “pandemic-related” spike, Friedlander says: Instead, they use the slower-changing values ​​reflected in industry listings such as the Kelley Blue Book.

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As a result, says John Espenschied, co-owner of the Insurance Brokers Group in Chesterfield, Missouri, it’s more likely than usual that an insurer’s settlement offer will not meet the true cost of replacing the vehicle. And that, he says, makes it all the more important to research the cost of replacing a car that has added up and negotiate with the loss adjuster if the amount offered falls below that figure.

“If they want to offer the Blue Book value, you have to say, at that price I can’t buy this car again. I must be made whole.” Such negotiations can be done directly with the adjuster, he says, who may be motivated by a desire to “settle a hundred other cases at once.” Alternatively, he says, you can contact your agent. ask to negotiate on your behalf.

Anyway, he says, the more you explore how to buy car insurance?, the greater your chances of success. “Try to find multiple offers [of comparable vehicles to your own], through sources such as Auto Trader and the like, which are as accurate as possible for your market – such as within a 10 or 20 mile radius of where you live, if possible.” And be sure to offer any optional extras to the vehicle, such as an improved sound system, correctly.

Friedlander acknowledges that there may be gaps in this ‘unprecedented’ used car market, saying this should be motivation to negotiate particularly hard on a car’s price. “Do your homework when shopping for a used vehicle and if possible don’t pay above book value.” Paying too much for a car, he says, is “being financially vulnerable when you’re making a total loss.”

As an example of the threat of today’s “very high prices,” Friedlander cites 2007 Camry Toyota Solaras with approximately 120,000 miles on the odometer. These vehicles have a Blue Book value of about $2,000, he says, but some dealers have sold this model for $6,000 to $8,000 — or three to four times the official value an insurer would use when settling a claim.

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