Having the proper insurance on your classic car is extremely important. Too often classic cars are insured with a standard insurance company, generally the owner’s personal driving vehicle or homeowner’s insurance company. This could potentially cause problems if you would ever need to unfortunately make a claim, as some of these insurance companies only deal with ACV (Actual Cash Value) policies. Any classic or collector car should only be insured with a Stated or Agreed Value policy.
As I mention in my blog post Can Classic Cars Be a Good Investment?, new cars go through a depreciation stage before the value may stabilize. If it was a noteworthy vehicle, the vehicle could start appreciating in value again as a classic, but not always. This is important to remember as I explain the 4 types of insurance policies.
1) ACV (Actual Cash Value) – Mainly used for newer cars in the depreciation stage, and should not be used on a collector car policy. This policy does not use the value of the car from a collectible standpoint, only as a transportation means vehicle only.
2) Stated Value Policy – Allows you to state the value you’d like to insure for and agreed by the insurance company, but does allow for depreciation and generally has deductibles.
3) Agreed Value Policy – Both parties agree to a value, which does not depreciate and generally has no deductibles. This is the most common policy with classic car owners.
Actual Cash Value
An ACV policy SHOULD NEVER be used on a classic vehicle, as payment will be limited to the blue book value. It won't take much damage to an old car before it is "totaled out" by the insurance company under an ACV policy as the blue book value is always lower than any other value. Collector car insurance companies only deal with collectibles, so they understand the details that add value to a car. Hot rods, special editions, rare, famous designer built, they know them all and can properly assign a value to them.
Stated Value Policies
allow you to state a value to the vehicle, which the insurance company will agree on. These policies generally have deductibles, but do allow room for depreciation of the vehicle. These policies may fit your need if you want to drive the vehicle more often than an Agreed Value Policy allows. You will want to regularly update the stated value amount due to the depreciation.
Agreed Value Policies
is what's used for most restored collector vehicles. These policies have great rates, but limitations do apply. Generally there is a mileage limit, usually around 2,500 miles a year, but this can be raised to 5,000 miles with some agencies for a higher premium. You must be at least 25 years old, and sometimes 30 depending on the carrier and location where you live. A fairly clean driving record is also required, with sometimes a 10 year driving history. You must also show proof of another daily driving vehicle It does not need to be, nor should it be, insured with the classic car insurer. They just want to make sure this classic will not be used as your daily transportation.
You may be required to have a secured garage or other forms security which include alarms and/or sprinkler systems if your classic is worth hundreds of thousands of dollars. My guess is if you could afford a car(s) that expensive you would likely invest in that already.
We went over it earlier in the buying process, but you should request past receipts of work done or parts in the vehicle. This can help you prove to the insurer that the car is worth what you are trying to insure it for, as they may not agree. This proves really important with hot rods and custom cars, as they are not as easily valued as something that fits in a pricing guide for the mass produced manufactured models.
Chapter 10 - Delivering a Classic Car