Like many who can afford to share his passion, George Girot has a split personality when it comes to cars. One persona sticks with his "daily drivers," as the high-tech R & D manager calls them--the typical boring cars most consumers use for everyday driving. But then there's Girot's alter ego--the wild and carefree guy who likes to cruise down the highways near his Boulder Creek, Calif., home in his Lamborghini Miura S or another of his collectible cars.
For most of us, a car (or two or three) is among the most expensive investments we will make--usually second only to our homes. But for a diehard car buff, it's not uncommon to spend more on a car than the cost of a modest home in a working-class neighborhood. Car collectors are shelling out big bucks for increasingly pricey rides.
While these auto enthusiasts might enjoy being carefree, their more responsible side--nudged, very often, by their financial advisor--knows they must maintain sufficient insurance on those prized rides.
Does a rare or pricey auto automatically mean astronomical insurance costs? Not necessarily. There are several factors that determine the bottom line for your client's insurance policy. Perhaps one of the most significant factors is how frequently the owner uses the vehicle. If, for example, your client uses his shiny new Ferrari for the daily commute to the office, he can expect to pay more than if he only uses it on very special occasions.
In Girot's case, he drives his more common cars for the daily grind, so he has a special collector's policy for his pricier rides. "My collector car policy has a number of restrictions not found in regular policies, but these are tailored for the needs of most who own and occasionally drive special-interest cars," Girot says. "Yearly rates are much lower than if the same car was possible to insure under a daily driver policy."
Insurance costs vary by vehicle make and model, and even some common, moderately priced cars can end up in a higher insurance rate bracket. When calculating rates, insurance companies factor in the likelihood of theft. For experienced car thieves--especially those in big cities--their livelihood depends on stealing vehicles and parts they can unload quickly. Certain models are more attractive to thieves, and these aren't necessarily cars that cost a fortune. For example, the Dodge Stratus and Honda Civic have a theft rate much higher than average.
And then there are hybrid cars. Sure, they're good for the environment--but they can be a real headache for an insurance agent. "Being a new vehicle type, there is limited information on loss history, which is a factor in pricing autos," says Matthew Cullina, product manager for MetLife Auto & Home. "Also, hybrid cars may be more costly to repair when comparing them to similar non-hybrid models. For example, hybrid batteries are significantly more costly to replace than the average non-hybrid battery. Many carriers do not provide replacement cost coverage for special parts, and the car ends up getting 'totaled' after a loss due just to the price of the battery."
Another type of vehicle popular with upper-income drivers, even in these days of high fuel costs, is the Hummer. Linda North, president of the Hummer Club, says her insurance company initially didn't even have a category listing for Hummers, so she was forced to pay the highest insurance premium for that class. Rates have become more reasonable since then, and North has found a way to make her insurance even more affordable. "Most of us are small business owners. As such, we insure our vehicles through our companies which brings the rates down."
Even within the collectible or big-ticket category of cars, there are many variations in insurance costs. For example, the deductible: Leon Rousso, CFP, says owners should be prepared to cover minor expenses out of pocket. "I am a big believer in high deductible insurance plans. The primary reason for having insurance is to protect assets, not to get dings fixed or fender-benders covered. A high deductible auto insurance plan with a proper liability limit integrated with an umbrella rider is almost always the best way to go," he says. "Going from a $250 to a $1000 deductible could save somewhere around 10 percent per year in premiums. Going to a $2,000 or even a $5,000 deductible--depending on the value of the car--can really keep some money at home--sometimes as much as 30 percent to 40 percent of the premium."
But how do you determine the value of a car when there are only a handful like it in existence?
"Setting the value of a particular collector car--and therefore the coverage limit--can be difficult in some cases, because collector cars are not covered by Kelly Blue Book listings, which the insurance industry uses to determine the value of a car if damaged or totaled," Girot says. "When you first purchase a collector car, it is typically insured for a coverage limit equal to the purchase price, and you must provide a copy of the bill of sale to arrange this with the insurance company."
Custom features or special modifications can also affect the insurance bill. "Many collector car insurance companies do not insure modified cars, but only cars restored or preserved in an original and very good condition," says Girot. "I have a 1957 Corvette that was an undocumented race car in the 50s and 60s, and as such was modified. My insurance company finally agreed to cover it after some discussion and on the strength of my other cars [insured] with them. A fully documented historic race car would be insurable without problems, but an undocumented one is by default categorized as a 'hot rod.'"
Appreciation can be another tricky issue when it comes to insuring rare cars. "One of my cars has been appreciating fairly dramatically over the past three years, and it is challenging to convince the insurance company to increase the coverage accordingly in fairly big jumps," Girot says. "The only way to do this is to obtain sales information (comps) for similar cars--not advertised asking prices, but actual sales data." This may be difficult if a car is rare and few, if any, are sold, or if actual sale prices are not made public. The best sources of sale prices are auction results available from auction companies, or sometimes on Internet sites. "I have been going through this exercise for my Lamborghini Miura S. There is public info for 12 Miura S models being sold worldwide over the past eight years, and two this past year. My insurance company has increased my coverage limit from $80,000 to $100,000 to $130,000 over the past two years, but the latest Miura S sold was just under $200,000, and a slightly rarer Miura SV just sold for more than $400,000. So mine seems continually underinsured. For cars not appreciating rapidly, such as a Ferrari I've owned for years, this is not such an issue. But for a very rare/unique car with no available comp sales information, I would imagine it would be necessary to hire multiple appraisers, and find other supporting evidence to try to substantiate the fair market value of the car."
Tips for insuring rare or pricey cars
Stick with one place. "Have all of your insurance with the same carrier, so you are fully entitled to all of the discounts available," advises Matthew Cullina, product manager for MetLife Auto & Home. "Particularly for the high-end consumer, there are package products (MetLife's is known as GrandProtect) that bundle multiple lines for ease of doing business."
Consider special collectors' policies. If the car is used rarely, you can probably get a reduced-rate policy. "These policies are tailor-made to these types of vehicles and are more affordable in that they take into consideration frequency of use," says Cullina.
Study the fine print. The policy might have some caveats, such as a clause requiring the car to be housed in a locked garage when not in use, or restrictions on how frequently the car can be driven in order to qualify for special collector rates.
Tell the truth. Your car stays in the city, but rates would be lower if you claimed it is kept at your weekend house in the country. While it may be tempting to fudge the truth, this is a risky move. "You are required to provide us with accurate information about your vehicles and garaging locations," Cullina says. "If the carrier discovers that it has been misled on these issues, there are policy provisions which support taking certain actions, which may include denying a claim or non-renewing the policy."--BD
Bobbi Dempsey is a freelance writer and the author of several titles in the "Idiot's Guide" series.