Things to know before insuring your luxury car:
Teslas, Porches, Corvettes, Mercedes, Range Rovers, etc.
Life is good…the car you’ve been dreaming about for years, maybe even since childhood, is now yours!
Chances are, when you bought your luxury car, you had very specific tastes and preferences in mind, and spent some time evaluating exactly what amenities you wanted in your new vehicle.
This is the fun part of shopping. Maintaining and insuring that luxury car purchase requires the same kind of thorough evaluation and consideration, but admittedly, is much less fun.
The purpose of this article is to simplify the process of maintaining a luxury vehicle, with special emphasis on obtaining luxury car insurance.
Everything You Should Know About Luxury/Exotic Car Insurance
Since luxury cars differ in many ways from non-luxury vehicles, the process of securing and maintaining car insurance is often more complex and can be a little painful. It is easy to get lost in all the information, offers and deals available; we want to ease and alleviate that process and make obtaining the right insurance convenient and effortless.
This article will explain what classifies as a luxury or exotic car, and what things you should consider while looking for optimal and affordable car insurance, suitable to your needs and your budget.
On Luxury Cars
The word luxury arises from the Latin noun luxuria (-ae, femininum), meaning “ample, exuberant, that which is full in itself.”
I don’t know about Latin, but in the language of cars, luxury means “fast, powerful, and absolutely gorgeous.”
Generally speaking, luxurious vehicles cost more because of three reasons: design and manufacturing costs, limited production, and materials.
Design And Manufacturing Costs
Luxury cars are considered “original” in the sense that designers and engineers often start from scratch to design something new and innovative.
These cars are unique and different from all the other models on the road. You aren’t going to find another car like yours in the school pick-up line. The emphasis on original design costs car companies time and money, which is then reflected in the price of the vehicle.
Once the car company designs the vehicle, the car goes through the manufacturing process. Because the car is different than other models even from the design stage, the assembly is obviously more complicated.
While the basic manufacturing process is similar for luxury and non-luxury cars, because of the additional technology, energy efficiency, comfort, horsepower, and amenities, it takes a lot more time and skill to manufacture a Tesla Model X P100D than a Honda Civic, for example.
Note that the production costs and manufacturing time also grow exponentially. It will take a lot more time and capital to manufacture the Tesla’s Model X P100D, which means that to scale up and make a hundred of them will be even more time-consuming and costly. This naturally leads to the next factor in the cost: limited production.
Limited production is by far the most impactful factor in the cost of a luxury vehicle. Unlike mass-produced cars, luxury and exotic vehicles take more time to be produced and therefore are built on a smaller production scale.
This naturally means there will be less of them available in the market, and that scarcity and rarity drives up the price of the vehicle. This is the basic law of supply and demand.
The materials used to build the vehicle do affect the price, but not as much as most people think. If you think that premium leather costs more than regular leather, you are partially right; it does cost more, but not a lot more.
If you think about it, the material out of which your car is made can be expensive within its market, but it won’t significantly impact the car’s final price.
To find more information about this topic, you should check out this Quora discussion, which covers this topic very well.
Unfortunately, the math doesn’t stop there. Everything regarding luxurious and exotic cars will cost more: every tire is more expensive, every rim, every mirror, and so forth.
A unique design means that everything on the car and under the hood is also unique, and that naturally means it will be more expensive.
Likewise, maintenance and repairs for luxury cars require different skill sets and specialized knowledge.
For example, most mechanics will repair a Honda Civic and have worked on a lot of them, but if you drive a $265,000 488GTB Ferrari into a local shop, the car mechanic will probably politely turn down the offer (after he spends a few minutes admiring your ride).
Such vehicles are complex in design and often difficult to maintain, requiring expert knowledge and parts, obtained only through years of dealing with those specific vehicles.
All of these factors, from design and production to maintenance and repair, affect the insurance costs. It is not a conspiracy by the greedy insurance companies to get more money from those who have the money to spend on luxury cars. It is just the way the global market works.
As the price of vehicle rises, the cost of vehicle insurance will increase exponentially (not always, but often), because the cost of repair and maintenance also climbs given the uniqueness and rarity of the car.
These are the things that significantly influence insurance quotes:
- Vehicle price (as we already discussed)
- Maintenance – Let’s say you own a Lamborghini in the state of Arizona. A part breaks off and you need to replace it. What are the chances that the local car shops in Arizona have a replaceable part for the limited Lamborghini model? Slim to none. The part will probably have to be shipped, and likely imported, which costs money. Moreover, it will also take a lot of time to find an adequate car mechanic.
- Appreciation – The value of luxury vehicle won’t deteriorate with time. On the contrary, it will probably go up, resulting in more expensive insurance.
- Driver’s psychology – Young and wealthy people (especially males) are attracted to powerful sports cars. Insurance companies have characterized this demographic as one that takes more risks, and they have claim data that supports their contention that it costs more to insure this group. Insurance companies take this into consideration when issuing a quote.
- Crime – Car theft is a common phenomenon in the world of luxury cars, and the insurance company is well aware of the increased potential for theft, which, you guessed it, also affects the premium.
Difference Between Luxury And Exotic
According to one Quote article, the average yearly luxury car insurance costs somewhere between $3000 and $5000. But what about exotic car insurance? Well, that can range from $5000 to $20,000 per year. Why? There are several reasons.
First, less competition. Not a lot of US companies want to ensure Ferraris, Lamborghinis or Maseratis. For most, the risks outweigh the potential profit. Those that provide insurance often supply it only for specific models.
There is also the psychological factor involved. As we said, high-end, expensive sports cars portray a risky and dangerous lifestyle. If the car can go up to 150 mph, there is a pretty good chance that someone will try to achieve the top speed, which, in turn, increases the likelihood of car accidents and damage.
There are also the problems with theft, environmental damage, and the fact that, if you buy a Lamborghini, you probably want the vehicle covered in full, which will, again, increase the cost of the insurance premium. The biggest problem is finding an insurer that is willing to take the risk to provide you insurance.
Now that you possess enough background information regarding the reasons behind the expense of luxury/exotic car insurance, let’s discuss concrete details.
We will discuss full coverage plans, which includes liability, personal protection from injuries, collision and comprehensive coverage.
Liability insurance is based on primary math. The goal here is to fund enough to cover the vehicle’s value. Liability insurance is used when you are found responsible in the case of a car accident or similar event.
If you are responsible for damage, your insurance company will cover the medical and property expenses. Insurance companies often separate the two forms of coverage: bodily injury and property damage, and they usually have limitations on covering these costs.
If you aren’t satisfied with the limits for BI (bodily injury) and PD (property damage), you can always look for an umbrella policy, which is often required by clients when they meet the BI and PD limits.
Personal Insurance Protection
Personal insurance covers the medical expenses in the event of an accident for you and your passengers. Because luxury and exotic cars have more power and speed, there is a greater chance for serious injury and damage.
Consequently, owners of these vehicles should always get personal insurance protection (also known as PIP). The good thing is that the insurer will cover the costs of treatment regardless of fault. Such insurance often covers not only medical treatment but may include missing wages for the time you spend in the hospital.
Naturally, options such as these depend on the insurer, and whether or not the insurer will be willing to cover those costs.
If the dedicated insurer doesn’t provide PIP, look for alternatives. You can either seek other insurers or ask for another form of medical payment. However, it is always best to include PIP whenever it is available.
Collision And Comprehensive Insurance
As the name suggests, collision insurance covers the expenses which occur in the event of a car collision. Note that it also covers the costs if your car hits a non-vehicle object, that is, events that cause damage but don’t necessarily classify as car collisions.
On the other hand, comprehensive insurance covers the damage caused by environmental events (natural disasters), theft, and so forth. When combined, these types of insurance provide full protection in any event. You will naturally have to discuss the price for each potential situation, but we will address that more in the price evaluation section.
Collision and comprehensive insurance are recommended to all car owners but apply especially to luxury and exotic car owners. Such insurance covers all costs, regardless of who or what caused the damage and whose fault is it. When considering this type of insurance, always pay close attention to the small details.
For instance, your insurer might suggest that, in the event of an accident, the damaged parts of your vehicle are replaced with the original parts. This factor will increase the premium costs but will ensure that your car keeps the same components and same performance if it is damaged.
It is often better to opt for this solution because it will then be the manufacturer’s duty to find and replace the damaged parts, which is more convenient and economically viable (unless you want to search the parts and pay for them on your own).
Other Things To Consider
We presume that you plan on buying a luxury car or already have it and are looking for adequate, cost-effective insurance. However, if your vehicle isn’t paid off, or if you are leasing it, then you should consider gap insurance.
Let’s say you own a $200,000 Mercedes, but you only paid half of it; you still owe $100,000. In the case of theft or total damage (meaning that the car has little to no value), most insurers will cover only the expenses you have paid for, which is $100,000.
However, as the name suggests, gap insurance implies that the insurer will cover the gap, so that you don’t lose, in our example, the other $100,000.
Even if nothing terrible happens, as soon you close the deal, sit in that car, turn the engine on, and drive out of the lot, the car has already lost its original value.
There is now a gap between what you paid for the car and what it’s “worth.” Unless you want to wait for a couple of decades, until that car becomes a classic, you will probably want to include gap insurance in your plan.
If you already paid for the vehicle, that is, if you own it in every sense of that word, consider opting for the car replacement insurance option. It is quite simple: the insurer will provide you with the exact brand and model if your car is stolen or completely damaged.
Please seriously consider these things if you own or plan to own a luxury or exotic car since it can save you thousands of dollars in the long run. Yes, these coverages will increase the total cost of your insurance premium, but you can be assured that, in the event of theft, hurricane, or collision, you will be covered in full by your insurance company.
Determining The Costs
Though it can be frustrating to go through all the legal agreements and paperwork, considering every little detail in your policy may not only lower your insurance cost but may also save you hundreds of thousands of dollars if something should happen to your car.
When determining the premium price, you and your insurer will first have to agree on the estimated value of your car. It applies in events of collision, total damage, vehicle theft, and so forth. In essence, you determine the compensation value in each specific situation, ranging from car theft to repair costs.
There are two values to keep in mind. First, is the cash value of the car. This value is determined via numerous factors, such as the car’s current value on the market, the car’s age, and whether or not it is paid off.
Alternatively, there is the replacement cost of the car, which is valid only for the cars that are owned by you for three or more years. Note that once the agreed amount is settled, the car’s market value still applies, but the depreciation costs don’t apply. In short, replacement cost is a more economically valuable solution in the event of theft or total loss.
Be very careful when you negotiate over these values, and when you discuss specific potential situations. Make sure that, if you do opt for the replacement value, that your insurer pays you the actual value (estimated value), not the cash value. This concept goes hand in hand with gap insurance, where the insurer will pay your full price, not the current cash price.
What Is The Best Insurance Company?
You picked the perfect car. Now which company is the best one to protect it? In short, there is no “best insurance company.”
There are, however, the best insurance companies for specific situations. Furthermore, almost all of them deal with you via third parties, or insurance agents, which can be captive or independent agents, but we will explain this more later.
Here you can check the list of some of the most notable insurance companies, with their pros and cons:
Although AAA often has higher premiums and somewhat limited options (regarding insurance flexibility), they usually have significant discounts and lower bundle prices for their consumers. (Later, we will also discuss how insurance bundles and discounts can be used to lower premiums.)
However, these limited benefits apply only to some states. In the state of Arizona, consumers have an almost full-range of selectable options, allowing you to fine-tune your insurance plan. AAA is best known for having friendly customer service, so you might manage to work something out if your agent is professional and persuasive.
Progressive is a client-orientated insurance company: the longer you stay with them, the more benefits you will have out of that relationship. Though they ordinarily don’t provide exotic or luxury vehicle insurance, if you are already their client (i.e., if you already use their insurance services, such as home insurance or life insurance), they will provide you with car insurance.
And, even if you are a new client, they may still open their doors to you. It depends on the factors they take into consideration, such as your driving history, credit history and so forth. However, their coverage limit is $150,000, and if your car is worth more than this, you should probably look for other alternatives.
Safeco is another, user-friendly insurance company, to whom client satisfaction is a number one priority. The great news is that they do offer insurance for luxury and exotic cars.
Safeco offers a lot of options regarding car insurance and will allow you to work out a reliable, affordable deal.
As with any insurance company, it is best to negotiate with your agent, preferably an independent insurance agent, because they can offer non-biased recommendations.
Though not best known for their customer service, Travelers offers affordable car insurance. They often reward their loyal customers with gifts and huge discounts, but are also open to new clients, providing them with low-priced premiums and discounts.
They offer various types of insurance, and, if combined, the price of the premium will drastically go down. But, this is also true for most insurance companies.
With Or Without An Agent?
Technically speaking, it is possible to work out car insurance (or any other insurance, for that matter) on your own, without the help of an agent. But the question is, how much do you know about the subject?
Are you prepared to ask the right questions, to come equipped with current data, and to double check all the details? Agents have hard-earned knowledge and years of experience on their side.
Some insurance companies use captive agents (their employed agents) to market and sell their products via telephone.
You can discuss the terms, or even buy the insurance via phone. But ultimately, only you can decide how valuable this is. If you own a high-end home or an expensive, exotic car, you probably want to meet the person with whom you are talking.
Moreover, the chances are good that the next time you speak with the company, you will be speaking with a different agent.
On the other hand, hiring an independent agent can help you in many ways:
- agents are more connected and knowledgeable about many companies, meaning that they’ll find
and compare the rates with ease and speed, and then inform you about the details of each option
- an independent agent will discuss both objective and subjective factors, meaning that he will
work out a deal that might not be best for your neighbor, but is best for you
- an agent can work out better deals, cross-reference discounts and lower the premium in your favor
- most importantly, the agent will help you with claims and will represent you in the best possible
ways when the time comes to actually use the insurance policy
- and finally, you can meet the person, a living human being, and discuss the problems over coffee
or dinner, not only via emails or telephone conversations
Captive Or Independent Agent
As the name suggests, the captive agent is bound to only one insurance company.
Such agents act as a spokesperson for a company, and their job is to present, solicit and sell the company’s products. Their loyalty is to their insurance company.
Of course, this doesn’t mean that the captive agent is “out to get you,” because every insurance company’s success depends upon customer satisfaction.
But, the captive agent will probably not suggest any offers from other companies, even if they know that another company might have a better insurance plan for specific situations. The lack of options is by far the biggest problem with captive agents.
On the other hand, independent agents work with multiple insurance companies and are allowed to represent as many as they want.
They browse and look, perform analysis and cross-reference the companies they represent, and then present an offer with the optimal solution. In a way, independent agents function as brokers, and are often referred to as such.
The downside of working with an independent agent is that the agent cannot work with the insurance companies that employ captive agents. However, we suggest that the benefits of having an agent that is not bound to a single company gives you more flexibility when it comes to coverage options and premium price.
Rather than feeling obligated to push certain products, independent agents are solely working to find you the best plan for your personal situation.
It is also more likely that the independent agent will work very hard to close the deal for you; they are dependent on their clients’ satisfaction and loyalty.
While this is also true to some extent for captive agents, they operate in a well-established business model and can generally take more losses.
How To Lower Your Premium
While there is no magic wand to wave and drastically reduce your premium, there are small strategies that can be combined to lower the cost.
If you apply this advice, and use these tools on a long-term basis, you will undoubtedly reap the benefits.
Be aware of the fact that the most significant role in premium calculation is played by you–your behavior, lifestyle, and so forth.
Being a responsible driver (few or no traffic violations and incidents) and having a good credit history (paying your premium on time) will affect the premium price, which can decrease over time.
Here are a few additional tips:
First and foremost, let’s start with your car. Installing an anti-theft system will not only ward off thieves and improve safety, it will also make you eligible for various discounts.
Many companies offer discounts to people whose cars have an installed anti-theft system.
Additionally, every car has a VIN number which is unique and acts like a fingerprint for your car. When you buy your car many dealerships will offer VIN etching for free, where the VIN number is etched below the seal line of the windows.
If a thief tries to sell the car by removing the VIN plate, these etchings still identify the vehicle as your car, making it difficult to sell. Some people even have VIN etchings done on the engine or other parts, making the thieves’ jobs even harder. VIN etching will not only make your vehicle more protected, but will also drop your premium rate (even up to 7-8%, depending on the company).
Consider how you use your vehicle. If you only drive it from time to time, you may not need full coverage with every possible coverage option. Also, it is likely that the company will consider your regular parking spots. Using secured parking lots will decrease your premium.
As we said, your behavior, driving, and traffic history affect your premium. For instance, if you earned a parking ticket or speeding ticket, most states allow you to take those violations off your driving history list by taking a course on defensive driving.
While taking a course may be frustrating, time-consuming, and not exactly on your list of “favorite things to do on a Saturday,” it is worth the effort because every ticket affects your premium price.
If you own a luxury vehicle, join a luxury vehicle club. You don’t have to necessarily “hang out” or be friends with the club members, but most clubs offer benefits and are connected with insurance companies. Moreover, even if they aren’t, the fact that you are a member of a vehicle club will undoubtedly reflect positively on your premium.
Furthermore, if you have teenage children, don’t list them on the driver’s list. Teenage children (boys in particular) are insurance company “red flags” for risky and reckless driving, which will significantly impact the price.
Hire an independent agent to provide you with multiple choices and work out a deal that is best for you. As you develop a relationship with the agent, this will also play a role in resolving potential claims with the insurance company later. Remember, these agents represent you more than they represent the insurance company.
Avoid frivolous claims and don’t necessarily report every single incident you have. It will not only affect your relationship with the insurance company, but will also raise your premium rate. It also increases the chances of the insurance company being on your side if significant damage occurs to you or your vehicle.
Finally, we recommend bundling your insurance needs, which means that you bind all your insurance plans into one. Insurance companies will always give you a discount for combining your different insurance needs with them and this will significantly lower the cost of your premium.
On Insurance Professionals of Arizona (IPA)
This segment is directed to residents of Arizona, specifically those who are seeking independent insurance agents, also known as brokers.
At IPA we offer numerous services and provide our clients with health insurance, car insurance, home owners insurance, and other insurance plans.
Our motto is simple: “When you call, we answer.” This client-based philosophy has kept us in business and steadily growing for over a decade. We are solely dedicated to providing the very best service to our clients and we use advances in modern technology to access the best information and secure the optimal insurance packages for their needs.
Like any other independent agency, we depend on our client’s satisfaction and strive to meet their unique requirements. You can visit our website here, see testimonials, read our blog, and most importantly, look at the companies we represent, including the four companies recommended in this article.
We have a well-established relationship with these and other reputable insurance companies, and we work rapidly and efficiently. What may seem effortless from the client’s perspective, actually requires a lot of work behind the scenes, which often includes back-and-forth negotiations, cross-referencing rates, discount detection, and so forth. When it comes to finding insurance, we work hard so you don’t have to.
Owning a luxury or exotic vehicle is the culmination of a dream for many people.
That dream should not become a hassle or a headache as you look for adequate insurance coverage.
We hope this article has been helpful in explaining the reasons for higher premiums and the steps you can take to mitigate that as much as possible. These principles apply no matter where you live and will allow you to make informed insurance decisions.
In Arizona, unlike many other companies, IPA welcomes the opportunity to help you insure your luxury or even exotic vehicle. Every case and every client is important to us, and we do our best to deliver our service in the most professional manner possible.
We understand the market, the different carriers, and the challenges of luxury car coverage, and can navigate the various offers and discounts to get you exactly what you need.
IPA’s job is to make owning and maintaining your dream car the easiest and most enjoyable experience possible. We’re ready to work for you!