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Is there a relationship between the rate at which your vehicle depreciates, and the cost of car insurance becomes more expensive? And, most importantly, how can you avoid this?

How is depreciation determined on your car?

It’s common knowledge that your new car begins depreciating as soon as you drive it out of the dealership. There are a number of ways depreciation is determined, and you’d be surprised at how much of this is in your control. As a general rule, you’ve done a good job fighting depreciation if people are still willing to pay a high price for the car years after you purchased it.

  • Vehicle popularity. Some vehicles hold their value better than others; small cars, certain coloured cars, or cars using a certain type of transmission are all good examples. Some cars are also considered ‘fashionable’ for quite a few years, which can stave off some level of depreciation.
  • Vehicle age and mileage. How old your car is directly affects its value, but this value will vary depending on how many kilometres have ticked over on the odometer.
  • Vehicle condition. If the car’s been well looked after, it’ll sell for a higher cost. A well-documented service history is highly regarded when selling your vehicle, and make sure you see a panel beater about getting rid of any dents, scrapes or tinting issues.
  • Vehicle extras. Did you purchase a car with leather seats? It could help the vehicle hold its value one day. Careful though, some features will date your car (e.g. cassette decks).

There’s a simple solution to finding out what your car is worth: go to Redbook.com.au, look up your make, model, and year, and see what other people are selling their cars for.

What factors can determine car insurance premiums?

Premiums are calculated by your insurer, but  factors they consider are based on the information you provide. This includes:

  • Driver/s. A person’s claims history, age, gender, and driving history..
  • Postcode and state. Did you know that 52% of cars were stolen straight from homes, according to the National Motor Vehicle Theft Reduction Council? It’s true, and the type of neighbourhood you live in can affect your premium, as will whether or not you garage your car where you park your car at night.
  • The vehicle. Here are a few things you may not know.
    • Expensive cars are more costly to insure because of the cost to replace/repair.
    • Older cars are (typically) worth much less, so they’re cheaper to insure.
    • Modifications that change performance (i.e. speed and handling) increases risk, the eyes of insurers. Adjusted suspension, superchargers, turbos, etc.
    • Security devices like immobilisers decrease risk of theft, which will mean cheaper premiums.

Your vehicle represents a key part of the insurer’s calculation; always keep this in mind.

What is market value?

If you insure your vehicle at market value, then the amount of money you would receive if your car was written off depends on its value ‘in the market’ at the time of the crash. A car’s resale value is very closely related to how insurers determine the market value of your vehicle, and so insuring by this method incorporates depreciation as a rule.

How can you negate the effects of depreciation?

  • In the first instance, invest in a vehicle that will hold its value, and is reportedly reliable
  • Regularly service (and wash) your car, as per your manufacturer’s instructions.
  • Drive safely. If you don’t crash and claim, you’re less risky to insure.

So if you feel you are paying more insurance than your car is worth, it might be time to get a new policy. Compare car insurance with us today to see if you can find a better deal.

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