Don’t Let Auto Depreciation Affect Your Insurance Payout

We’ve all heard bits of common wisdom that turn out not to be true. For instance, it’s fine to go swimming right after eating—you won’t get a cramp and drown—and it doesn’t take seven years for chewing gum to be digested if you swallow it. What about this one: does a new car really depreciate the minute you drive it away from a dealership?

Regrettably, the answer is yes. How much? According to Edmunds, an online source of information about all things automotive, a new car loses 11% of its value the moment you leave the lot. And during the first five years, it depreciates by 15%-25% each year, which means your car is worth 37% less on average at the end of those five years.

The demand for new cars is another factor that can affect depreciation. When the economy is good and people can afford to buy new, used cars will depreciate at a faster rate because fewer people want to buy them. Then there are questions of style and taste. In the mid-2000s, Hummers were as popular as cigars and Arnold Schwarzenegger. But they quickly fell out of favor and the last one was manufactured in 2010.

One factor that doesn’t affect depreciation a whole lot is the working condition of a vehicle. No matter how gently a car has been driven, used is used. Unless a vehicle has obvious mechanical issues, its value is most dependent on its age.

Auto depreciation is also a factor when it comes to many insurance payouts. Most mass-market insurance companies offer policies that pay Actual Cash Value (ACV), which means they use a set formula to calculate depreciation. So if you buy a new car and get into an accident that totals the car that same evening, your check could be 10% less than what you just spent for the purchase. This is true even if the vehicle sat in your garage for most of the day, and whether the accident was your fault or not.

That’s an unpleasant hit to take for any auto. But if you drive luxury cars, the price you pay can be exponentially higher—imagine losing $5,000 to $10,000 in one day just because a careless driver ran into you. There may be some room for negotiation with the claims representative, but consumer complaints about excessive and improper depreciation by insurance companies are rampant.

There are other options, and Kelly Klee can make them available to you. We partner with insurance companies that offer choices designed to fit with the lifestyles of successful individuals.

One is Agreed Value. The name of this option says it all. At the time you take out your auto-insurance policy, you and the insurer will decide together what your car is worth and lock in that amount. This is an especially excellent type of coverage to select if you have a rare or unique vehicle that cannot be easily valued or replaced.

Another choice is New Car Replacement. If you choose this option and your current vehicle is totaled, you’ll get a comparable new one in the latest model year. So if you’re a brand loyalist who loves your turbo Audi or BMW with alloy wheels, you’ll be back on the road in the updated version of your old friend before you know it.

In addition to more choice, the insurers that Kelly Klee works with also offer a higher level of customer service. You won’t spend hours on the phone haggling after an accident. These are companies that are interested in retaining customers over the long term; they do their best to make the claims process easy and hassle-free.

If you’re interested in learning more, Kelly Klee would love to give you a quote to show you what it would cost you to have Agreed Value or New Car Replacement coverage on your vehicles. Please contact us at 844-885-1600 or send an email to to get started.

Curious to find out how much your car has depreciated? Click here to go to a quick and easy calculator on the website.

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