Updating Your Car Insurance Coverage to Reflect Vehicle Upgrades

Car Insurance companies calculate auto insurance premiums based on factors that include your location, driving record and the type of vehicle you drive. Vehicle modifications can impact the rates, and even leave you uninsured.

Here you can learn the difference between general upgrades, performance upgrades, and aethetic upgrades. We'll then explain why many auto insurance companies are loathe to cover many types of modifications. When they decide to, the coverage offered may be subject higher rates and less flexibility; you'll discover why below.

"Typical" Modifications Versus Performance Upgrades

If you plan to own your vehicle for several years, you'll likely make a few upgrades over time. That's normal. For example, you might have a new stereo system installed to replace the original unit. Or, you might want an in-vehicle DVD entertainment system in your SUV. You may install rally lights on the roof of your car, or get a hands-free bluetooth telephone receiver.

While the upgrades described above are geared for comfort, others are designed to give your vehicle an attractive veneer or a boost in performance. For example, new leather seats, shiny aftermarket rims, and window tints all make your car look more aesthetically appealing. On the other hand, a racing transmission, performance exhaust, and hi-flow air intake are designed for performance.

All of the above modifications should be reflected on your auto insurance policy. Otherwise, they are unlikely to be covered. Worse, in some cases, a particular upgrade may render your policy null and void. That could be disastrous if you are involved in a traffic accident during which your vehicle is totaled.

Why Insurance Companies Refuse To Cover Souped-Up Vehicles

From the insurer's perspective, a car that has been modified with expensive performance upgrades represents an enormous risk. Some car owners spend two to three times the cost of their vehicle on upgrades and modifications. This is problematic for car insurance companies for two reasons.

Firstly, performance parts and systems added to the vehicle often times cost more than the car itself. If the vehicle gets wrecked, the replacement value for all the upgrades would exceed the value value of the car.

Second, performance upgrades suggest the car's owner has a propensity for racing or other similarly risky driving behavior. That elevates his (or her) risk class and implies a greater likelihood of a traffic accident.

Taken together, these two factors cause many auto insurers to decline policies to motorists with souped-up cars. When a new policy is extended, or an existing policy is appended, it typically comes with limitations and higher rates.

Limitations When Insuring A Modified Vehicle

Many auto insurance companies are willing to cover cars that have been upgraded with modified parts... for a price. Their main issue is a the high probability of an insurance claim. To that end, they will usually cap the number of miles you're allowed to drive each year and place additional restrictions on the type of driving you do - for example, racing. Such policies will often restrict policyholders to driving less than a certain number of kilometers throughout the year.

The replacement cost reflected in these type of policies is based on an agreed upon value or a stated value. The former is a number that is negotiated between you and the insurer. In the event of a loss, the insurer agrees to pay the negotiated value. The latter is also a negotiated number. The difference is that the insurer agrees to pay the lesser of the stated worth or fair market valuation in the event of a claim.

Can You Find Better Coverage With Lower Rates?

As you might expect, your auto insurance premiums will normally be much higher for a souped-up vehicle. Moreover, many insurers will refuse to cover some types of modifications. There's no time like the present to shop for the insurance your require at the rates your can afford. When you contact your insurer to update your policy with recent upgrades, determine the effect those upgrades will have on your premiums. Then, look online for lower car insurance rates.

Many people don't believe they have time to comparison shop for the best package (i.e. open coverage options, a better service, and lower insurance premiums.). You may find that doing so uncovers surprisingly attractive deals.