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Updating Your Car Insurance Coverage To Reflect Vehicle Upgrades

By Kade Phillips

Republish: EasyPublish™
Published: 04Mar2010
Word count: 740
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Your car insurance company calculates your rates based primarily on the value of your vehicle and a risk class to which you are assigned as a driver. Any modification you make to your car, truck, or SUV influences this formula. Unfortunately, there is a lot of confusion among motorists regarding what is considered an "upgrade" and how a given modification can impact your premiums. That leaves you exposed to potential coverage gaps.

On this page, we'll clarify the difference between upgrading your vehicle for aesthetics, performance, and general improvement. We'll then explain why many auto insurance companies are loathe to cover many types of modifications. When they choose to do so, the policies are usually accompanied by strict limitations and much higher premiums; you'll discover why below.

"Typical" Modifications Versus Performance Upgrades

If you plan to own your vehicle for several years, you'll likely make a few upgrades over time. That's normal. For example, you might have a new stereo system installed to replace the original unit. Or, you might want an in-vehicle DVD entertainment system in your SUV. You may want a new bedliner or auxiliary lights mounted on your truck.

While the upgrades described above are geared for comfort, others are designed to give your vehicle an attractive veneer or a boost in performance. For instance, a body kit, chrome bumpers, and a rear spoiler are meant to improve your car's visual appeal. On the other hand, a souped-up engine, racing tires, and a modified suspension are built for performance.

All of the above modifications should be reflected on your auto insurance policy. Otherwise, they are unlikely to be covered. Worse, in some cases, a particular upgrade may render your policy null and void. That could be disastrous if you are involved in a traffic accident during which your vehicle is totaled.

Why Insurance Companies Refuse To Cover Souped-Up Vehicles

From the insurer's perspective, a car that has been modified with expensive performance upgrades represents an enormous risk. It's not uncommon for the owner of $20,000 vehicle to spend an additional $50,000 on modifications. This is problematic for car insurance companies for two reasons.

First, the components and systems added aftermarket are often worth more than the vehicle on which they're installed. If the car is totaled, its modified replacement value would far exceed its "normal" value.

Second, performance upgrades suggest the car's owner has a propensity for racing or other similarly risky driving behavior. That elevates his (or her) risk class and implies a greater likelihood of a traffic accident.

Taken together, these two factors cause many auto insurers to decline policies to motorists with souped-up cars. When a new policy is extended, or an existing policy is appended, it typically comes with limitations and higher rates.

Limitations When Insuring A Modified Vehicle

Many auto insurance companies are willing to cover cars that have been upgraded with modified parts... for a price. Their primary concern is the likelihood of a claim. To that end, they will usually cap the number of miles you're allowed to drive each year and place additional restrictions on the type of driving you do - for example, racing. Such policies will often restrict policyholders to driving less than a certain number of kilometers throughout the year.

The replacement cost reflected in these type of policies is based on an agreed upon value or a stated value. The former is a number that is negotiated between you and the insurer. In the event of a loss, the insurer agrees to pay the negotiated value. The latter is also a negotiated number. The difference is that the insurer agrees to pay the lesser of the stated value or fair market value in the event of a loss.

Can You Find Better Coverage With Lower Rates?

As you might expect, your auto insurance premiums will normally be much higher for a souped-up vehicle. Moreover, many insurers will refuse to cover some types of modifications. This is an ideal time to shop for the unique type of coverage you need with rates that fit your budget. When you contact your insurer to update your policy with recent upgrades, determine the effect those upgrades will have on your premiums. Then, look online for lower car insurance rates.

Most consumers never invest the time to shop around for a better package (i.e. flexible coverage, better service, lower rates, etc.). You may find that doing so uncovers surprisingly attractive deals.

Kade Phillips is a writer for several insurance comparison websites operated by Kanetix, where you can compare auto insurance quotes and auto insurance rates. Visit Kanetix for great savings on your car insurance premiums. Enter your postal code, answer several questions and the quoting engine will bring up rates from Canada's top insurers.

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