Why doesn’t my auto insurance rate decrease on my older vehicle?

One question that comes up a lot is: “As my vehicle gets older, why doesn’t my auto insurance premium drop since the vehicle is worth less?” This is a great question! At first thought this seems like the logical process. The vehicle is worth less, the insurance company will have to pay out less if it is totaled, so my rates should go down. And that is a valid argument and something that does play a factor. However, there are several more things in play here.

So, let’s cover these topics. I’ll package the first two together as the reason for both is similar.
We’ll start with a smaller aspect of the rate equation. As a vehicle gets older, the amount that your insurance would pay out if someone gets hurt will not decrease. In fact, medical care tends to increase every year and sometimes substantially. Then factor in that most cars as they get older, tend to not be as safe unless very well maintained. Stopping distance increases, brakes can fail, turning ability can be reduced, etc on a vehicle as it ages. These all increase your chances of having a claim, which would cause rates to go up, not down. So the small reduction from year to year in the value of your vehicle is typically offset some by the higher chances of a claim happening. But like I said, that is just a small part. The bigger part is the liability and medical payment payouts themselves. The average payout for medical care goes up every year! So, when you hit someone and they go to the ER to make sure they are OK, that bill gets higher every year. So, if your vehicle drops in value, but the amount your insurance company would have to pay out for any injury increases. The insurance company is still at risk for a lot more money being paid out.

Then there is the “small claim” part of the equation. Most insurance claims are small claims. This is when a bumper, a door, or a side panel are damaged in a minor accident. If you back into your mailbox and damage your rear bumper, that claim amount goes up every year too. Your vehicle may be worth a lot less than it did when it was brand new, but the insurance company is having to pay more every year to pay those small claims. So even though a total loss payout would be much less than when your car was brand new, all those small claims (that are a lot more likely to happen) cost your insurance company more every year. This causes your rate to stay the same or slightly go up. One last factor is safety features. New technology is developed all the time to keep you safe. Not all cars will have every feature, but obviously your older car won’t be getting any upgrades unless you foot the bill as manufacturers don’t have a practice of calling you to bring in your vehicle for upgrades. And those safety features keep claims costs down, so keep your rates down too. This can actually cause some new cars to be less to insure than older cars.

So, in summary, there are a lot of factors that go into your insurance rates, not just the value of your car. All the small and more common claims play just as big of a factor as the big claims that happen less often. And the biggest factor is the liability to others. Even though typically an older car will be a little less than a newer car, I have wrote many people at a lower rate when they get a new car due to all these other factors.

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12 thoughts on “Why doesn’t my auto insurance rate decrease on my older vehicle?”

  1. I get the part in the article where it talks about medical costs rising. My problem with that is most insurance policies have a disclosure about how much personal injury coverage you choose. There is a cap on that so to me it seems irrelevant that the rising cost of medical only offsets the decreased value of the vehicle kind of common sense and the insurance companies are still double dipping. Truth of the matter is insurance companies House most of the free money in society. Hence theReason that they post millions in profits which in turn equates to big bonuses and nice vacations to Islands etc. etc. So this article really doesn’t work right if you break it down properly.

    • We appreciate your feedback.
      Even with a cap to the amount of total dollar coverage, if the average claim rises lets say 5% per year, while still being under the total coverage available, the points still stand. They may not have maxed out the claim, just as they may not have totaled their vehicle. But the total cost of that claim rises nearly every year, and that will always factor into the rates. And to your point on the caps, you should always keep an eye on your total coverage available, but that is for another post. 🙂

  2. “Why doesn’t my auto insurance rate decrease on my older vehicle?”

    The pessimist in me says because the industry is a racket.

    But, insurance in fact does go down (in some parts of the world), why? – because it makes sense.

    Here in South Africa : ” King Price offers insurance that decreases monthly in line with the depreciating value of your car”, “When you have comprehensive car cover”…”, your premium decreases monthly. ”

    Insurance companies always want to insure to the value of a new car. C’mon, I’ve never bought a first hand car in my life.

    • Those that say the industry is a racket usually don’t have a full understanding of what they’re buying. You don’t have to carry collision or comprehensive. If the rates are to a level where someone feels it isn’t worth it, they can buy a car outright and take the chance nothing happens, keeping the money in their pocket. Same goes for liability. If you’re required to have it, you can choose to carry the lowest amount allowed and hope you never have a claim that isn’t fully covered by that amount of coverage. You can take the money you save and tuck it away in case that happens. You can also gamble that no one ever puts you in the hospital and they don’t have enough coverage to pay for your medical bills, missed time from work, etc.
      But the reality is, if you injure someone and they need even a basic surgery, missed time from work, and physical rehab that costs a total $100,000, you’ll most likely never have enough saved up to pay that out of pocket. If you do, great for you and that is awesome that you’ve been able to do that. You could have bought better insurance for a much smaller amount of money, and still had a large majority of your money still in hand. So it’s a system where you can decide how much risk you want to keep, and how much you want to pass off to the insurance company. Some may call that a racket, most would call that a service you can choose to utilize.
      Yes, things can definitely be very different in other Countries. Even in different States. If a law passes that reduces the total dollar amount you can be sued for after a claim, the rate would go down when that law goes into effect (unless that amount is still well over your coverage level, in which it would not reduce the insurance company’s exposure to how much they would pay out). And in some areas, you may see some reductions in premium for parts of your policy like collision and comprehensive, without a leveling of frequency of claims and costs when claims occur, rates won’t level out either. Also, this is not to say rates never go down. Rates have risen a lot over the last few years due to a large increase in distracted driving accidents. Now things have leveled out somewhat, more technology is helping people keep their eyes on the road more often, and even has claims reduced by vehicles automatically braking. So rates have leveled back out for the most part, and some companies have actually been able to lower rates some in some areas. A good insurance company is always looking at their numbers, and adjusting rates to remain not only profitable, but also competitive.

  3. The article has very good information. Your vehicle may be worth a lot less than it did when it was brand new, but the insurance company is having to pay more every year to pay those small claims. This information is really new to me and possibly for some other people as well.

    • Thanks for your response! We hope it helps a lot of people have a better understanding of their rate changes and a more realistic idea of what will happen to their rates over time. 🙂

  4. I think the small claims statement is silly. I’m far less likely to make a small claim on an older car than a newer one. Also, you state that small claims are “a lot more likley to happen”. Why? The only small claim I’ve made in 20+ years was for a windshield that cracked. Yet my rate just got hiked by nearly 15% this year. My cars are 9 and 10 years old, and well maintained. I’ve found the longer you stay with one company, the more they increase your rates. When you finally shop around and switch you get lower rates and then it starts over again.

    • When I talk about small claims, I’m referring to claims that are around $2000 – $5000. Someone hits you in a parking lot and takes off. You rear end someone. You slide off the road and do some damage to your car. Most claims are these types of claims and most people turn in these claims. Few claims are a total loss, which is where the value of the vehicle comes into play. As far as why, I think it’s self explanatory. How often do you see a total loss vs see an accident where the damage would not lead to a total loss? As to your statement about shopping around, I would agree with that. After 3 to 5 yrs, some companies will get out of line rate wise. Others won’t. Never hurts to check options (one of the reasons I went independent, so I could do this for my clients as needed), but don’t lose focus on having a quality policy and company too. And a good agent can really come in handy should you need a helping hand during a claim.

      • While I don’t have the statistics in front of me, intuitively I must agree with Tanveer. As vehicles age, (at least in my state where rates and deductibles are drastically higher than the national average), owners are LESS likely to file smaller claims for minor damage – especially body damage that is generally quite expensive for even the smallest of jobs. Paying a $1000 deductible for $2000 claim, and then watching your rates increase, is less and less likely as a vehicle ages. This rationale (and the article in general) seem to cater to the insurers’ point-of-view, rather than an objective look at an obviously valid question – with, let’s be honest, an obvious answer. I am car shopping now, and my quotes for a newer (*not new*) car, with TREMENDOUSLY more advanced safety features that didn’t even exist when I purchased my previous vehicle are coming back ridiculously high. And the answer the broker gives is “think of the cost of replacement to the insurer”. Because that is a major factor in their process. The natural and correct converse, is that rates should lower as the value of the vehicle diminishes. But, because these companies are not in the business of making less, or taking less from you, we instead get to listen to the mental gymnastics of the industry to justify robbing us.

      • I appreciate the response and you do make some valid points. I agree that there should be a lot more hesitation with turning in smaller claims. But the reality is, most people don’t follow that same mindset. Whether it is a windshield claim or a smaller claim for relatively minor damage, a lot of claims are turning in for these smaller claims. Most deductibles in our area are $500, so to use your example of $2,000 in damage I would fully agree that when possible that claim shouldn’t be turned in. But often it is because someone doesn’t want to pay (or currently can’t pay) the extra $1500 out of pocket now and would rather pay higher rates for the next 3-5 yrs. So the article isn’t taken from the insurer’s point of view at all, but from my point of view from working with clients for 20 yrs now. I have convinced clients in the past not to turn in a claim for small amounts, but have had more times where I could not convince them. Especially if it was something like a hit and run in a parking lot where the rates won’t change as much. But again, the other point (being that the premiums for the liability coverages increasing over time can mask the small savings for the reduction in value of the vehicle) remains a valid point that most don’t factor in.

  5. No it is a racket, call another insurance companion and I guarantee you will get a lower rate. I have done this 3 times. I have told others and 10 out of 10 have saved money. Insurance companies know people don’t like change and they charge you for it!!!!

    • Shopping your rates can help keep your rates in check too, but calling insurance a racket is a little extreme. As an independent agent that represents over 15 companies, I see way too many people find “better rates” but really what they’re finding are worse policies. Lower coverage amounts, higher deductibles, or optional coverages removed are the tricks some companies use to “provide a better rate”. The problem is, when you have a claim you are probably not going to have a good experience because best case you’re paying a higher deductible or don’t have a rental car, worst case you run out of coverage and get sued for what isn’t covered by your insurance. So we always balance price with coverage, and we know most companies offer their best discounts for being with the same company 3-5 yrs so try to shop when someone falls in this range is the best chance at the best possible rate.


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