Everyone knows that as soon as you drive a new car off the lot its value starts to depreciate, and the more kilometres you put on, the more its value drops. That’s a reality of car ownership, however…
What if you put 50,000 km on your shiny new car, which depreciates its value to half of what you paid; then your teenager gets in an accident driving it and now it’s a write-off. Will you get the full value of your car covered by your insurance, i.e. the $30,000 you paid for it new? Or will you only get $15,000 because of how much it’s depreciated in the year and a half since you bought it?
Well, that depends: did you know to ask for a depreciation waiver on your car insurance? If you’re working with an insurance broker he or she will have pointed out the inexpensive option of a depreciation waiver to you when you bought your new car.
The waiver of depreciation, which usually stands for two years after purchase of your vehicle, states that the insurer will not depreciate the car if something happens – whether it gets totaled or stolen. You will receive the full purchase price of your car. After the two-year period, the value of the car is on a depreciated basis.
If you do not have this feature, the insurance company will give you the cash value of your of vehicle in the condition it was in prior to the loss, deducting depreciation for age and mileage.
The waiver of depreciation is calculated on the actual purchase price of the car and the equipment in the car (stereo, etc.), the suggested list price the car was sold for, and the total cost of replacing the car with of the same make and model with the same equipment that the initial car was loaded with.
The cost of the depreciation waiver is calculated into your auto insurance policy along other factors, such as driving history, age of driver, and value of the vehicle.
Now that you’re in the market for a new car again, don’t forget to talk to your insurance broker about insurance for newly acquired vehicles.