“My car is getting older, it is decreasing in value, but my insurance isn’t much cheaper. Why?”

It may come as no surprise; many people don’t like insurance, and they like to complain about it. Being an insurance agent for quite some time now, I have heard just about every complaint out there. One I hear a lot is that since people think because their vehicle is getting older and decreasing in value, their premium should reflect that and be drastically reduced. However, that just isn’t how insurance works.

To illustrate, I picked out two cars–same make and model but with a 10-year age difference–and compared their respective insurance rates. The first subject was a 2001 Honda Accord EX sedan with 150,000 miles valued at $6,498 according to www.carsoup.com. The second was a brand new 2011 Honda Accord EX sedan valued at $26,005 according to www.buerklehonda.com.

Assuming a 30-year-old male driver with one speeding ticket in the past 3 years, adequate liability limits, and $500 deductibles for comp and collision, let’s take a look at the insurance rates. Insurance on the 2001 Honda is $52.50 per month, and for the 2011 Honda, it is $69.08 per month. That’s a negligible difference of less than $20 per month, but the 2011 Honda’s overall value is four times higher than the value of the 2001 Honda. It seems something doesn’t add up here. If you agree, please read on.

Most insurance claims are not total losses (a total loss means the car is damaged beyond repair, and the insurance claim is the full value of the vehicle). Rather, most claims are fender-benders, minor bumps and bruises that don’t require the entire car to be replaced. And since the difference in cost to repair a fender on a 2001 Honda Accord versus a 2011 Honda Accord is nowhere near the difference in overall value between the two vehicles, the insurance premiums are closer than many would expect at first glance.

Therefore, insurance premiums are far more heavily dictated by the cost to repair a vehicle, not by the actual value of the vehicle itself.