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Luxury Car Insurance: High-End Tech Demands High-End Coverage

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Today’s high-end automobiles are the incubators of tomorrow’s high-tech cars. Several of this year’s top luxury models, for instance, offer such innovative features as 3-D Surround Sound stereo systems, night vision cameras, touch screens with mobile phone and seat adjustment apps and even Air Balance packages that filter, purify and perfume the interior cabin air. In a few years, more humble vehicles will likely sport the same upgrades.

Some of these novel features are optional, but are sure to become standard in such high-end cars like Bentley, Tesla, Mercedes Benz and Italy’s trio of superb driving machines—Ferrari, Lamborghini and Maserati. The luxury automobile industry has really pushed the envelope of technological ingenuity in recent years. Back in the 1970s, a seatbelt was the key safety feature, and drivers weren’t even required to snap them shut. Today, some high-end brands tout seatbelts that will tighten the second the car senses an imminent accident.

Such “smart machines,” as they’re now called, may also include a set of pre-tension brakes that determine if the car is closing in too fast on the one in front of it. Sensors at the front of the automobile depress the brakes to slow down the vehicle accordingly. As for tomorrow’s cars, as Google’s driverless cars demonstrate, the sensor-driven data analytics will do a good part of the driving for you.

The growing array of high-tech marvels in luxury automobiles is a mix of safety features and others focused more on entertainment and comfort.

With systems for navigation, collision warning and perfect parallel parking now available in less expensive automobiles, the luxury car brands are differentiating themselves competitively with the best that technology can offer.

For those with the means to afford them, luxury cars are far more than just status symbols. They simply want the safest, most secure and comfortable cars available. But all that high tech comes with high cost if they break down or are otherwise damaged in an accident. For example, the sensors imbedded in the front of a high-end automobile to provide night vision cameras cost more than $11,000 to replace if damaged in a front-end collision. The cameras project an infrared image on the windshield when a deer or child, for instance, ventures onto a darkened road ahead.

Cars that offer adaptive cruise control invite significant costs as well. Adaptive cruise control is simply conventional cruise control with a sensor that slows down the car when it gets too close to another car in front of it. Similar to the aforementioned depressed brake sensors, they, too, are located at the front end of the vehicle. The replacement costs of a damaged adaptive cruise control sensor are about $2,300.

Certainly, the costs of replacing such vital safety systems are well worth it, as they save lives and reduce the risk of even greater damage to an automobile caused by a collision. But there is an undervalued if not largely unknown element to these high-tech features that involve insurance: Not all insurance policies will reimburse the full value of replacing the systems.

Costly and Possibly Not Covered

James Merriman, the executive VP of HUB International, a national brokerage specializing in serving the risk management and insurance needs of affluent families, emphasized the importance for financial advisors and wealth managers to understand that their clients’ luxury automobiles should be insured through so-called “agreed-value” insurance.

“If you own a $120,000 high-end, fully electric automobile with all the latest technology systems, which is what a lot of our clients are buying these days, and that car is totaled in an accident, a run of the mill insurance policy will not reimburse the full amount towards another $120,000 car,” Jim explained. “It won’t come close.”

The reason, in part, is depreciation. As everyone knows, the minute one drives a brand new vehicle off the car lot it is generally worth 20% less. Generic car insurance policies take depreciation into account when a claim is filed. An agreed-value insurance policy, on the other hand, establishes the value of the car at the time the insurance was contracted. If the policyholder paid $120,000 for the car, that amount is locked in for the 12-month period of the insurance policy. Total it, and you get the full agreed value.

This full and complete amount of coverage applies to all of the automobile’s components—from a busted side view mirror to the replacement of those fancy LED light systems that have become ubiquitous on a few luxury models.

Interestingly, Jim said that many individuals mistakenly believe that all automobile insurance policies are alike, other than their price. “Too many people think car insurance is a commodity,” he said. “Obviously, we don’t sit down with our clients or their advisors and say, `If you’re in an auto accident, we will repair the car except for the extra cost of this high-tech system or that one. They’ve got other things on their mind and want the best insurance available, which is what we automatically provide them. And that is agreed-value coverage.”

He added, “The companies promoting their inexpensive car insurance in TV commercials; well, they don’t sell agreed-value insurance.”

In much the same way that high-net-worth individuals and their families typically buy the safest automobiles available, they should also purchase the surest auto insurance—“surest” in the sense that there are no sudden surprises when an accident claim is filed.

Safer and Wiser

There are side benefits to buying a luxury brand with the best high-tech collision warning and other safety systems. As Jim noted, “Cars with these alert-type features cost more to repair, but they also reduce the risk of an accident. High-end insurers typically take into account the reduction in frequency risk in their underwriting.”

He makes a good point. Any time an automobile manufacturer enhances vehicle and/or occupant safety, insurance companies will generally reflect this in their pricing. As these sophisticated safety features are passed down and incorporated in lower-priced vehicle models, everyone benefits—well, everyone other than the auto repair shop.

Who knows? Three or four years from now we may all be driving cars with scented air wafting out of the vents. I’ll take gardenia.

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