Insurance Premiums: The price we pay

Why do they increase when the value of a car depreciates?

Some things don’t make sense. Why do people put their songs on shuffle only to skip most of them until they find the one they like? Why do drivers turn down the volume on the radio when they’re lost? There are some things in life that just don’t make sense!

Like car premiums – why do they increase when the value of a car depreciates?

We’ve decided that even though we can’t answer the shuffle/skip conundrum or the finding your way/radio volume link, we can at least find out the answer to the question of increasing car insurance premiums.

Firstly, here’s why a car’s value decreases over time: The moment you drive a car off the showroom floor, its value drops to wholesale price (what the dealership paid to buy the car). From then on, your new car generally loses about 15 to 20% of its value each year. Then there’s the issue of wear and tear. Parts of your vehicle will probably suffer minor scuffing, and the interior might be soiled from frequent use. Your car’s mileage is also something worth considering. Although the figure doesn’t tell the whole story, a vehicle with high mileage theoretically has more wear and tear. All of this has a negative effect on the value of a car.

What really determines the lion’s share of your premiums is inflation and repairs. The cost of labour increases every year, not to mention parts – replacing the bumper on a five-year-old car is no less expensive than replacing the bumper on a brand-new car.

Confusion aside, car insurance is something you can’t afford to live without. You need protection from the damage, injuries, and the costs related to unforeseen events. Something that serious should be left in the hands of a reputable company that does all the heavy lifting. Before you commit to anything, you’ll want to know what you’re getting yourself into. Get an insurance quote from MiWay for peace of mind that lets you focus on what matters most: living your way.